SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 1997
COMMISSION FILE NUMBER 0-26168
CAREADVANTAGE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 52-1849794
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification Number)
485-C Route 1 South, Iselin, New Jersey 08830
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (908) 602-7000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
74,389,886
Number of shares of Common Stock outstanding as of June 16, 1997
Transitional Small Business Disclosure Format
Yes _X_ No__
This is Page 1 of 14 Pages.
<PAGE>
CAREADVANTAGE, INC
CONSOLIDATED BALANCE SHEETS
ASSETS April 30, October 31,
1997 1996
-------- ----------
Current assets:
Cash and cash equivalents $ 147,507 $ 1,167,147
Accounts receivable-stockholder 1,184,970 833,333
Accounts receivable-other 678,476 90,000
Other current assets 186,107 129,829
----------- -----------
Total current assets 2,197,060 2,220,309
Property and equipment, at cost less
accumulated depreciation 1,464,675 1,480,746
Intangible assets (net) 1,856,198 2,080,769
Other assets 85,417 79,184
----------- -----------
Total assets $ 5,603,350 $ 5,861,008
=========== ===========
LIABILITIES AND CAPITAL DEFICIENCY
Current liabilities:
Current portion of long-term debt $ 542,932 $ 623,472
Note payable-stockholder 2,000,000 2,000,000
Accounts payable-trade 384,810 569,346
Due to customer 117,648 485,594
Due to stockholder 0 1,525,694
Accrued salaries and employee benefits 511,727 512,505
Accrued expenses and other current liabilities 1,447,720 694,996
----------- -----------
Total current liabilities 5,004,837 6,411,607
Capital lease obligations, less current portion 717,390 996,591
Due to stockholder, less current portion 0 435,912
Notes payable-stockholder 1,862,823 0
Deferred revenue and other long-term liabilities 746,540 0
Capital deficiency:
Preferred stock-par value $.10 per share;
authorized 10,000,000 Shares; none issued
and outstanding
Common stock-par value $.001 per share;
authorized 90,000,000 Shares; issued
and outstanding 74,389,886 and 24,233,327 74,390 24,233
Additional capital 19,640,586 19,690,248
Accumulated deficit (22,443,216) (21,697,583)
----------- -----------
Total capital deficiency (2,728,240) (1,983,102)
----------- -----------
Total liabilities and capital deficiency $ 5,603,350 $ 5,861,008
=========== ===========
The accompanying notes are an integral part of these statements.
2
<PAGE>
CAREADVANTAGE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
April 30, April 30,
------------------ ------------------
1997 1996* 1997 1996*
---- ----- ---- -----
<S> <C> <C> <C> <C>
Net revenues 3,966,096 3,416,734 $ 6,335,397 $ 7,464,124
Costs of services 1,796,964 2,289,292 3,685,097 4,719,504
--------- --------- ----------- -----------
Gross margin 2,169,132 1,127,442 2,650,300 2,744,620
Operating expenses:
Selling, general and administration 1,240,347 1,684,289 2,739,197 2,763,700
Depreciation and amortization 258,238 300,181 514,805 539,726
---------- ---------- ----------- -----------
Total operating expenses 1,498,585 1,984,470 3,254,002 3,303,426
Interest 65,730 140,469 141,932 195,005
Net income (loss) $604,817 ($997,497) ($745,634) ($753,811)
========== ========== =========== ===========
Pro forma net income (loss)
per share of common stock $.01 ($.02) ($.01) ($.01)
========== ========== =========== ===========
Pro forma weighted average number
of common shares outstanding 74,389,886 59,164,000 74,389,886 50,445,000
========== ========== =========== ===========
</TABLE>
*Reclassified to conform to current period classification.
The accompanying notes are an integral part of these statements.
3
<PAGE>
CAREADVANTAGE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
April 30,
--------------------
1997 1996*
---- -----
Operating activities:
Net profit (loss) ($745,634) ($753,811)
Adjustments to reconcile net profit (loss)
to net cash Provided from (used for)
operating activities:
Depreciation and amortization 514,805 539,726
Expense associated with issuance of warrants 0 98,000
Change in assets and liabilities:
Due to/from customers/stockholders (1,406,842) (1,050,650)
Other assets (62,511) 11,441
Accounts payable (184,536) (165,115)
Accrued expenses and other liabilities 1,498,486 339,896
Restricted cash account 0 (480,318)
----------- -----------
Cash provided from (used by)
operating activities (386,232) (1,460,831)
----------- -----------
Investing activities:
Capital expenditures (273,667) (11,428)
Acquisition of intangible assets 0 (179,462)
Acquistion of CHCM(cash proceeds-net of
transaction costs) 0 750,612
----------- -----------
Cash provided from (used by) investing
activities (273,667) 559,722
----------- -----------
Financing activities:
Principal payments under long-term debt (359,741) (254,451)
Proceeds from issuance of note payable 0 2,000,000
Net proceeds from issuance of common stock 0 925,000
----------- -----------
Cash provided from (used by) financing
activities (359,741) 2,670,549
----------- -----------
Net increase (decrease) in cash (1,019,640) 1,769,440
Cash - beginning of fiscal year 1,167,147 536,471
----------- -----------
Cash - end of period $ 147,507 $ 2,305,911
=========== ===========
*Reclassified to conform to current period classification.
The accompanying notes are an integral part of these statements.
4
<PAGE>
CAREADVANTAGE, INC.
NOTES TO FINANCIAL STATEMENTS - APRIL 30, 1997
(Unaudited)
CareAdvantage, Inc. ("CAI" or the "Company"), is a holding company which,
through its subsidiaries, CareAdvantage Health Systems, Inc. ("CAHS") and
Contemporary HealthCare Management, Inc. ("CHCM"), provides health care cost
containment services to health care insurers and other health services
organizations to reduce the costs of medical services provided to their
subscribers without reducing the quality of service.
Basis of Preparation:
The consolidated balance sheet at April 30, 1997 and the consolidated statements
of operations and cash flows for the three-month and six-month periods ended
April 30, 1997 and 1996 have been prepared by CAI and have not been audited by
the Company's independent auditors. In the opinion of management, the
accompanying financial statements include all adjustments (which include only
normal recurring adjustments) necessary to present fairly the financial
position, results of operations and cash flows at April 30, 1997 and for all
periods presented.
Certain information and note disclosures required to be included in the
financial statements prepared in accordance with generally accepted accounting
principles have been omitted. These consolidated financial statements should be
read in conjunction with the financial statements and notes thereto included
with the Company's October 31, 1996 Annual Report on Form 10-KSB filed with the
Securities and Exchange Commission. The results of operations for the period
ended April 30,1997 are not necessarily indicative of operating results to be
expected for the full year.
Pro forma Net Income(Loss) Per Share Common Stock:
Pro forma weighted average common shares outstanding include the CW Ventures II,
L.P. ("CW Ventures") shares of 25,914,222 issued in connection with the terms of
the promissory note by CAHS in favor of CW Ventures, dated February 22, 1996 as
if they had been issued on February 22, 1996 and the Blue Cross and Blue Shield
of New Jersey, Inc. ("BCBSNJ") shares of 24,242,337 issued in connection with
the terms of the promissory note by CAHS in favor of BCBSNJ (as assignee of
Enterprise Holding Co., Inc.), dated February 22, 1996 as if they had been
issued as of November 1, 1995, as the operations of the business purchased from
BCBSNJ (CHCM) is included in the Company's results of operations for the entire
six-month period ended April 30, 1996.
Contingencies:
Potential Uninsured Exposure to Litigation:
On or about March 22, 1996, an action entitled Francis X. Bodino v. BCBSNJ and
CHCM (the "Bodino Action") was filed in the Law Division of the Superior Court
of New Jersey in Hudson County. The complaint alleges misrepresentations with
respect to the type and amount of coverage afforded by Mr. Bodino's policy with
BCBSNJ, specifically with respect to coverage for heart transplantation. The
complaint also alleges that representations made on behalf of BCBSNJ by an
employee of CHCM led Mr. Bodino's surgeon to believe that contractually excluded
heart transplant coverage was available. The complaint demands a variety of
money damages, as well as punitive damages, against both defendants. The
complaint also contains a claim for treble damages and counsel fees under the
New Jersey Consumer Fraud Act. BCBSNJ is presently defending the Bodino Action
on behalf of itself and CHCM, and has denied liability in all respects and has
specifically denied that the policy purchased by Mr. Bodino covered heart
transplantation or that any misrepresentations or fraud occurred. BCBSNJ and
CHCM have filed a motion for summary judgment, which remains pending as to all
claims and is subject to further discovery. The Company, based upon the advice
of its counsel, has insufficient information, at present, to evaluate CHCM's
potential exposure, if any, in this litigation.
At the time of the events underlying the Bodino Action, CHCM was a subsidiary of
BCBSNJ and had been engaged by the Company, through CAHS, to provide certain
staff and assistance to CAHS in support of CAHS's obligation to provide
specified services for BCBSNJ, all in accordance with the terms of an Interim
Services Agreement dated as of April 1, 1995 by and among BCBSNJ, CHCM, the
Company and CAHS (the "Interim Services Agreement"). By letter dated February
15, 1996, counsel for Mr. Bodino gave written notice to CHCM contesting the
denial of coverage and threatening litigation against CHCM and BCBSNJ. The
Company and CAHS purchased CHCM on February 22, 1996. The Company did not
maintain insurance coverage that would cover claims against BCBSNJ or CHCM
arising from events occurring prior to February 22, 1996, which might constitute
a breach under the Interim Services Agreement. The Company has been informed by
BCBSNJ that BCBSNJ has notified its carrier of the claim and the carrier has
advised BCBSNJ that certain policy exclusions may be applicable to preclude
coverage for the claimed damages, either in whole or in part. BCBSNJ has further
asserted that it does not believe any such exclusions are applicable and that it
has furnished additional information to the carrier in support of its position.
The Company, based upon the advice of counsel, is not presently able to
determine whether the Bodino Action might result in any loss to the Company or
CHCM and, if so, whether any such loss would be material.
5
<PAGE>
CAREADVANTAGE, INC.
NOTES TO FINANCIAL STATEMENTS - APRIL 30, 1997
(Unaudited)
Termination of Employment:
A former Medical Director of CAHS has asserted a claim. The former Medical
Director was employed from September 1995 through May 1996 when he voluntarily
resigned, allegedly due to a change of control of the Company in February 1996.
He contends that he is entitled to: (i) a severance payment equal to one year
annual base compensation ($190,000); and (ii) vesting in 75,000 qualified stock
options at a strike price of $1.25 per share. The former Medical Director bases
his claim on an executed written agreement drafted by a placement firm, which
memorializes some, but not all, of the terms and conditions of his employment.
The Company intends to vigorously contest this matter on the grounds that the
former Medical Director (i) is not entitled to severance; and (ii) has no
entitlement to stock options as the plan was never approved by the shareholders.
The former Medical Director alleges claims of breach of contract and promissory
estoppel; an action has not yet been commenced in any court. The parties have
agreed to submit this claim to arbitration before the American Arbitration
Association in an effort to amicably resolve this matter prior to litigation. At
this time, the Company cannot predict the likelihood of a favorable or
unfavorable outcome.
Professional Liability:
In providing utilization review and case management services, the Company makes
recommendations regarding benefit plan coverage based upon judgments and
established protocols as to the appropriateness of the proposed medical
treatment. Consequently, the Company could have potential liability for adverse
medical results. The Company could become subject to claims based upon the
denial of health care benefits and claims such as malpractice arising from the
acts or omissions of health care professionals. Although the Company does not
believe that it engages in the practice of medicine or that it delivers medical
services directly, no assurance can be given that the Company will not be
subject to litigation or liability which may adversely affect its financial
condition and operations in a material manner. Although the Company maintains
comprehensive general liability and professional liability insurance coverage,
including coverage for liability in connection with the performance of medical
utilization review services and typically obtains indemnification from its
customers, no assurances can be given that such coverage will be adequate in the
event the Company becomes subject to any of the above described claims.
Subsequent Events:
Re-negotiation of contract with Blue Cross and Blue Shield of New Jersey, Inc.
("BCBSNJ"):
In June 1997, the Company completed re-negotiating its contract with BCBSNJ.
Under the terms of the revised agreement, the Company will continue to provide
specialized cost containment services for BCBSNJ on behalf of its approximately
780,000 indemnity and PPO subscribers. This amended and restated agreement which
expires on June 30, 2000 supersedes the original service agreement entered into
on February 22, 1996. Under the revised terms, the Company will receive a
combination of fixed- and performance-based compensation. The Company has
recognized revenues from this contract for the three-month and six-month periods
ended April 30, 1997 of $3,071,000 and $4,901,000, respectively.
Contemporaneously with the execution of this amended and restated services
agreement the Company issued to BCBSNJ a promissory note in the approximate
amount of $1,863,000 for repayment of cash received in excess of revenues earned
from such customer during 1996. Interest on the note accrues at the five-year
treasury rate, adjusted quarterly, beginning April 1, 1997, with principal and
interest payments to commence in substantially equal monthly installments on
October 1, 1998.
Resignation of Senior Officer:
On May 23, 1997, a senior officer of the Company tendered his resignation as
President of CAHS effective June 27, 1997. Pursuant to his Employment Agreement,
dated June 1, 1995, and amended as of June 6, 1996 (the "Employment Agreement"),
the former employee is to receive salary continuation payments for six months or
until such time that he accepts another employment offer, whichever occurs
first. The Company recorded a severance charge of $134,000 in fiscal year ended
October 31, 1996 pursuant to the provisions of the Employment Agreement.
6
<PAGE>
CAREADVANTAGE, INC.
NOTES TO FINANCIAL STATEMENTS - APRIL 30, 1997
(Unaudited)
Resignation of Directors:
By unanimous written consent dated as of May 22, 1997 the Board of Directors
accepted the resignation, effective as of May 23, 1997, of two members of the
Board of Directors, David Kass and Eric Schlesinger, which directors had been
nominated by CW Ventures. The Board of Directors filled the vacancies created
with two new directors, Barry Weinberg and Walter Channing, Jr., nominated by CW
Ventures pursuant to section 1.1(e) of the Stockholders Agreement, dated as of
February 22, 1996, among the Company, CW Ventures, and BCBSNJ. Each of Mr.
Weinberg and Mr. Channing is a co-founder of Channing, Weinberg and Company,
Inc., a business consulting firm to healthcare companies and financial
institutions, and is a general partner of CW Partners III, L.P., the general
partner of CW Ventures. Additionally, the Board of Directors, by unanimous
written consent dated as of May 22, 1997, consented to fixing the Board of
Directors at six members.
Form of Chief Executive Officer Employment Agreement Approved by The Board of
Directors:
By unanimous written consent dated as of June 11, 1997, the Board of Directors
approved an employment contract for the President and Chief Executive Officer of
the Company ( the "Riley Employment Agreement"), which is attached as an exhibit
hereto and incorporated by reference herein. The Riley Employment Agreement
provides for a term commencing June 10, 1997 and ending on December 31, 1998,
with annual compensation of $275,000 per annum. If Mr. Riley is employed by the
Company on June 30, 1997, he is entitled to receive a bonus in the amount of
$100,000. The Riley Employment Agreement also provides for certain payments to
be made to Mr. Riley in the event of a Non-Fault Termination (as defined in the
Riley Employment Agreement), including without limitation, the salary to which
he would be entitled during the 12-month period following the date of such
Non-Fault Termination. Mr. Riley agrees to certain non-compete provisions, as
more fully set forth in the Riley Employment Agreement.
Establishment of Credit Facility in the amount of $3 million with Summit Bank:
In June 1997, the Company entered into an agreement (the "Credit Agreement")
which is attached as an exhibit hereto and incorporated by reference herein,
with Summit Bank, and BCBSNJ, as guarantor. The Credit Agreement provides for a
working capital facility in the amount of $1,500,000 and a term loan in the
amount of $1,500,000. The Company's obligations under the Credit Agreement are
guaranteed by BCBSNJ, a principal stockholder of the Company, according to the
Guaranty Agreement which is attached as an exhibit hereto and incorporated by
reference herein, and are secured by pledged U.S. agency securities of BCBSNJ
according to the Pledge Agreement which is attached as an exhibit hereto and
incorporated by reference herein. The working capital and term loan facilities
bear interest at a 30, 60, or 90-day Libo rate, plus 45 and 50 basis points
respectively with an option to convert to a base/prime rate. The term loan
matures on June 30, 2000 and the working capital facility matures in 360 days
(one year).
7
<PAGE>
CAREADVANTAGE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General Developments of Business:
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The accountant's report to the
Company's financial statements included with the annual report filed on Form
10-KSB for the fiscal year ended October 31, 1996 contains an explanatory
paragraph indicating that there is substantial doubt about the Company's ability
to continue as a going concern. Although the Company has experienced significant
operating losses on a consolidated basis, resulting in a deficit equity
position, management has taken several steps to build on what it believes to be
a successful business model, including the re-negotiation of key contracts. By
continuing to provide high quality health care cost containment services to its
existing customer base of Blue Cross and Blue Shield (BCBS) plans, management
believes it can continue to leverage its reputation to other similar customers.
This strategy is particularly significant given the current health care
environment where large third-party payers are merging in an effort to protect
their respective franchises and expand their market reach. The various BCBS
plans throughout the country are no exception to this phenomenon and the Company
believes it can leverage its core competencies to participate in this
consolidating environment.
Management is of the opinion that it must continue to refine its current service
lines in order to continue to add value to existing and potential customers.
Additionally, the Company intends to broaden its services offered with unique
and complementary cost-containment strategies. Management intends to evaluate
each service with regard to anticipated changes in the health care industry, the
cost to enter any such line of service as well as the availability of competent
resources. To further expand its line of services, the Company intends to pursue
alternatives to its internal product and service development efforts by entering
into strategic alliances and joint venture as well as through acquisitions.
The Company is currently in the process of negotiating contracts with two of its
existing customers. There is no assurance that the revised terms of any revised
contract will be on terms more favorable than the terms of the existing
contracts. Based on discussions with one such customer to date, management
expects that a new contract will be entered into and will provide a mechanism
for the Company to secure more timely and accurate data from which to record its
performance-based revenue fees. However, there is no assurance that such a
mechanism will guarantee timely and accurate recording of these
performance-based fees. There is no assurance that the Company will be
successful in its negotiations with such customers.
Certain statements in this Form 10-QSB constitute forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995,
including those concerning management's expectations with respect to future
financial performance and future events, particularly relating to revenues from
performance-based services and re-negotiation of existing and new contracts with
customers. Such statements involve known and unknown risks, uncertainties and
contingencies, many of which are beyond the control of the Company, which could
cause actual results and outcomes to differ materially from those expressed
herein.
Re-negotiation of contract with Blue Cross and Blue Shield of New Jersey, Inc.
("BCBSNJ"):
In June 1997, the Company completed re-negotiating its contract with BCBSNJ.
Under the terms of the revised agreement, which is attached as an exhibit hereto
and incorporated herein by reference, the Company will continue to provide
specialized cost containment services for BCBSNJ on behalf of its approximately
780,000 indemnity and PPO subscribers. This amended and restated agreement,
which expires on June 30, 2000, supersedes the original services agreement
entered into on February 22, 1996. Under the revised terms, the Company will
receive a combination of fixed- and performance-based compensation. The Company
has recognized revenues from this contract for the three-month and six-month
periods ended April 30, 1997 of $3,071,000 and $4,901,000, respectively.
Contemporaneously with the execution of this amended and restated services
agreement the Company issued to BCBSNJ a promissory note in the approximate
amount of $1,863,000 for repayment of cash received in excess of revenues earned
from such customer during 1996. Interest on the note accrues at the five-year
treasury rate, adjusted quarterly, beginning April 1, 1997, with principal and
interest payments to commence in substantially equal monthly installments on
October 1, 1998.
8
<PAGE>
CAREADVANTAGE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Establishment of Credit Facility in the amount of $3,000,000 with Summit Bank:
In June 1997, the Company entered into an agreement (the "Credit Agreement")
which is attached as an exhibit hereto and incorporated by reference herein,
with Summit Bank, and BCBSNJ, as guarantor. The Credit Agreement provides for a
working capital facility in the amount of $1,500,000 and a term loan in the
amount of $1,500,000. The Company's obligations under the Credit Agreement are
guaranteed by BCBSNJ, a principal stockholder of the Company, according to (the
`Guarantee Agreement") which is attached as an exhibit hereto and incorporated
by reference herein, and are secured by pledged U.S. agency securities of BCBSNJ
according to (the "Pledge Agreement") which is attached as an exhibit hereto and
incorporated by reference herein. The working capital and term loan facilities
bear interest at a 30, 60, or 90-day Libo rate, plus 45 and 50 basis points
respectively with an option to convert to a base/prime rate. The term loan
matures on June 30, 2000 and the working capital facility matures in 360 days
(one year).
Re-negotiation of contract with Blue Cross Blue Shield of Rhode Island
("BCBSRI"):
The Company has announced that it has reached a compensation agreement with Blue
Cross and Blue Shield of Rhode Island ("BCBSRI"). Under the terms of this
agreement, effective January 1, 1997 through December 31, 1999, the Company will
provide utilization management services to BCBSRI's approximately 360,000
indemnity subscribers. The agreement calls for the payment of approximately $1.1
million in fixed fees for fiscal year 1997 with additional revenues being
recognized on a performance basis. However, there are no assurances that the
Company can recognize such revenues. Final negotiations regarding the other
agreements between the Company and BCBSRI are in process.
Joint Services Agreement With Allied Health Group, Inc.:
In May 1997, the Company entered into a Joint Services Agreement, which is
attached as an exhibit hereto and incorporated by reference herein, with Allied
Health Group, Inc. ("Allied"), a Florida corporation, to deliver specialized
health care cost management services in the form of physician management of
specialty networks to various Blue Cross and Blue Shield plans (the "Blues
Plans") throughout the United States. The Company and Allied have determined
that the combination of services offered by the two organizations can be an
effective and competitive advantage in the marketplace. The agreement provides
for a three-year term with an automatic three-year renewal clause, unless either
Allied or the Company gives notice to the other of its intent not to renew the
agreement at least 90 days before the end of any three- year period.
Compensation will be shared according to level of services provided and will be
phased in over a three-year period with incremental services being provided by
the Company to the Blues Plans. However, there are no assurances that the
Company can secure such contracts with any Blues Plans or can contract with the
Blues Plans in a manner that would be financially beneficial to the parties to
this agreement. Except for the agreement with HMO Blue and Allied (discussed
below), the Company has not entered into any such relationship with any Blues
Plans pursuant to this agreement.
Consulting Agreement With Coordinated Health Partners, Inc. d/b/a (BlueCHiP):
In April 1997, the Company entered into a consulting agreement, which is
attached as an exhibit hereto and incorporated by reference herein, with
Coordinated Health Partners, Inc. a Rhode Island health maintenance
organization. The Company has been engaged to provide various utilization review
services including prospective, concurrent, and retrospective requests for
covered services for purposes of determining whether such services are medically
appropriate. Additionally, the agreement provides that the Company will assist
in the education and training of claims administration and claims adjudication
of BlueCHiP personnel. The Company will be compensated at a capitated rate of
($.48) for each BlueCHiP member per month. The Company anticipates recognizing
approximately $100,000 in revenue for fiscal year ended October 31, 1997.
Agreement by and among Medigroup of New Jersey, Inc. (d/b/a "HMO Blue") and
Allied Health Group, Inc. ("Allied"):
In March 1997, the Company entered into an agreement, which is attached as an
exhibit hereto and incorporated by reference herein, with Medigroup of New
Jersey, Inc. (d/b/a HMO Blue) and Allied for the provision of certain network
management services to Allied and HMO Blue. HMO Blue is a wholly owned
subsidiary of BCBSNJ. Under the terms of this agreement, the Company will work
with Allied to effect cost management strategies directed toward specialist
costs in the HMO. Pursuant to certain side letter agreements, dated June 13,
1997 and March 1, 1997, respectively, between HMO Blue and the Company, HMO Blue
retains the right, in its sole discretion, to terminate this agreement at any
time. There can be no assurances that HMO Blue will not exercise its rights
thereunder. These letter agreements are attached to the agreement as exhibits
hereto and are incorporated herein by reference.
Form of Chief Executive Officer Employment Agreement Approved by Board of
Directors:
By unanimous written consent dated as of June 11, 1997, the Board of Directors
approved an employment contract for the President and Chief Executive Officer of
the Company ( the "Riley Employment Agreement"), which is attached as an exhibit
hereto and incorporated by reference herein. The Riley Employment Agreement
provides for a term commencing June 10, 1997 and ending on December 31, 1998,
with annual compensation of $275,000 per annum. If Mr. Riley is employed by the
Company on June 30, 1997, he is entitled to receive a bonus in the amount of
$100,000. The Riley Employment Agreement also provides for certain payments to
be made to Mr. Riley in the event of a Non-Fault Termination (as defined in the
Riley Employment Agreement), including without limitation, the salary to which
he would be entitled during the 12-month period following the date of such
Non-Fault Termination. Mr. Riley agrees to certain non-compete provisions, as
more fully set forth in the Riley Employment Agreement. In addition, Mr. Riley
entered into a letter agreement, dated June 10, 1997, with BCBSNJ and CW
Ventures, pursuant to which each of BCBSNJ and CW Ventures agrees to pay to Mr.
Riley a certain bonus upon the disposition by such stockholder of a certain
percentage of shares of common stock of the Company owned by such stockholder.
Each of BCBSNJ and CW Ventures also agrees to certain releases and
indemnification of Mr. Riley, all as more fully set forth in such letter
agreement, which is attached to the Riley Employment Agreement as an exhibit
hereto and incorporated by reference.
9
<PAGE>
CAREADVANTAGE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Net revenues:
Six Months Ended
----------------
April 30, 1997 April 30, 1996
-------------- --------------
Amount Percent Amount Percent
------ ------- ------ -------
Revenues from fixed fee
arrangements $4,883,000 77% $4,550,000 61%
Revenues from performance-
based arrangements 1,292,000 20% 2,543,000 34%
Consulting revenues 160,000 3% 371,000 5%
---------- --- ---------- ---
Total revenues $6,335,000 100% $7,464,000 100%
========== === ========== ===
Contracts that provide for performance-based revenues require claims data that
is supplied by the Company's customers to calculate the achievement of goals for
each period. Because claims data typically lags the Company's actual performance
by several months, it is difficult to ensure maximum accuracy when recording
performance-based revenues. Management is working closely with its customers to
secure more timely and accurate data to improve the accuracy of reporting its
revenues, including, in some cases, the re-negotiation of the contract itself.
Revenues:
Net revenues for the three-month and six-month periods ended April 30, 1997 were
$3,966,000 and $6,335,000, respectively, compared to net revenues in the
corresponding periods of the prior fiscal year of $3,417,000 and $7,464,000,
respectively, representing a decrease for the six-month period of approximately
$1,129,000. This decrease is primarily due to a reduction in recognized
performance-based fees from one of the Company's major customers.
Revenues from at-risk performance-based service contracts generally tend to
follow a pattern whereby significant revenues are generated during the initial
term of the contract as savings opportunities are the greatest and then decline
thereafter as the opportunity for additional savings diminishes. As a result,
the Company's ability to increase revenues and gross margins is dependent upon
its ability to enter into additional contracts with new customers and/or expand
the services provided to existing customers.
Cost of services:
Cost of services for the three-month and six-month periods ended April 30, 1997
were $1,796,964 and $3,685,000, respectively, compared to $2,289,000 and
$4,720,000 in the corresponding periods of the prior fiscal year, representing a
decrease for the six-month period of approximately $1,035,000. This decrease in
the cost of services was primarily due to decreases in personnel costs of
approximately $635,000, professional and consulting costs of approximately
$200,000 and information and communication costs of $200,000.
10
<PAGE>
CAREADVANTAGE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Operating expenses:
Selling, general and administrative:
Selling, general and administrative costs for the three-month and six-month
periods ended April 30, 1997 were $1,240,000 and $2,739,000, respectively,
compared to $1,684,000 and $2,764,000 in the corresponding periods of the prior
fiscal year, representing a decrease for the three-month period of approximately
$444,000. This decrease is largely due to non-recurring charges incurred during
the corresponding period of the prior fiscal year. The decrease during the six
- -month period of approximately $25,000 is offset by non-recurring charges
incurred during the current fiscal year of approximately 300,000 related to
severance payments to a senior officer of the Company in the approximate amount
of $100,000 and payment of a bonus to an executive officer of the Company in the
approximate amount of $200,000.
While management intends to take steps in the future to reduce general and
administrative costs, such reduction in costs may be offset to some extent, by
anticipated increases in selling, marketing and service development costs. There
is no assurance, however, that the Company will be successful in reducing
general and administrative costs by any material amount.
Depreciation and amortization:
Depreciation and amortization costs for the three-month and six-month periods
ended April 30, 1997 were $258,000 and $515,000, respectively, compared to
$300,000 and $540,000 for the corresponding period of the prior fiscal year.
This represents a decrease for the three-month period of approximately $42,000
and is primarily due to decreased goodwill amortization related to the
acquisition of CHCM which was written down during the year ended October 31,
1996 and the decrease in the six-month period of approximately $25,000 is offset
in part by increased depreciation related to increased spending on capital
expenditures during fiscal year 1997.
Interest expense:
Net interest expense for the three-month and six-month periods ended April 30,
1997 was $66,000 and $142,000, respectively, compared to $140,000 and $195,000
for the corresponding period of the prior fiscal year. The decrease is primarily
due to interest on the BCBSNJ Note which was converted to equity on September
30, 1996 and interest related to the Company's master lease agreement with IBM
Credit Corporation. As a result of the securing of a credit facility with Summit
Bank (discussed above) the Company anticipates increased interest expense in the
third and fourth quarter of fiscal year 1997.
Loss from operations:
Results of operations in the future are dependent on management's ability to
increase revenues and leverage both direct costs of services and general and
administrative costs. While there can be no assurance that such efforts will be
successful, management believes that opportunities exist to increase revenues
and leverage costs in areas that will not adversely effect the operations of the
Company.
Financial Condition:
Liquidity and Capital Resources:
At April 30, 1997, the Company had cash of $148,000 and a working capital
deficiency of approximately $2,808,000. At October 31, 1996, the Company's cash
balance was $1,167,000 and it had a working capital deficiency of approximately
$4,191,000. The decrease in working capital deficiency is due to the Company's
ability to generate cash flows from operations during the second quarter ended
April 30, 1997 and reclassification of notes payable in the approximate amount
of $1,863,000 as long-term liabilities, which were previously classified as
short-term obligations in prior periods.
Since the Company's inception, the Company's operating activities have not
generated sufficient cash to fund its operations; as a result, the Company has
relied on the sales of capital stock, capital contributions and guarantees by
11
<PAGE>
CAREADVANTAGE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
thirds parties of debt to fund its operating activities and capital
expenditures. As discussed above, the Company has entered into a Credit
Agreement with Summit Bank for an aggregate amount of $3 million dollars for use
in funding operating activities and the Company's capital expansion needs. See
"Future Financing Needs" below.
Cash and cash equivalents decreased approximately $1,020,000 as of April 30,
1997 from October 31, 1996 and increased approximately $1,769,000 as of April
30, 1996 from October 31, 1995, due to changes in cash flows from operating,
investing, and financing activities which are explained below.
Net cash used in operating activities amounted to approximately $386,000 for the
six- months ended April 30, 1997. The decrease of approximately $386,000 is
partially due to the net loss and the repayment of amounts related to cash
received from one of its customers in excess of revenues earned from such
customer. The remaining balance of this obligation is $118,000 and does not bear
interest nor is it secured or collateralized by any assets of the Company.
Net cash (used)/provided by investing activities amounted to approximately
($274,000) and $560,000 for the six-months ended April 30, 1997 and 1996,
respectively. The decrease of approximately ($834,000) is primarily due to the
cash received from the acquisition of CHCM of approximately ($751,000) during
the six-months ended April 30, 1996 and increased capital outlays incurred
during the current fiscal year of approximately ($262,000) offset by a reduction
in software development costs of approximately $179,000 which were incurred
during the same period of last year when the Company was implementing its new
computer system.
Net cash (used)/provided by financing activities amounted to approximately
($360,000) and $2,671,000 for the six months ended April 30, 1997 and 1996. The
decrease of approximately $3,031,000 is primarily due to the proceeds received
from the issuance of a note payable to CW Ventures of $2,000,000 and the
issuance of common stock of the Company with a value of approximately $925,000
during the six- months ended April 30, 1996.
Financing
Amounts payable pursuant to long-term financing arrangements as of April 30,
1997 were approximately $1,260,000, consisting of capital lease obligations
pursuant to a Master Lease Agreement with IBM Credit Corporation for the
financing of computer and telephone equipment, installation, software and
related system integration expenses. The term of the Master Lease is four years
and bears interest at 11.39% per annum. The Company's obligations under this
Master Lease arrangement are guaranteed by BCBSNJ.
In connection with the re-negotiation of the amended and restated services
agreement with BCBSNJ (discussed above), the Company issued a promissory note in
the approximate amount of $1,863,000 with non-cash interest accruing in April
1997 and equal monthly payments of principal and interest commencing on October
1, 1998. The promissory note bears interest at a five-year U.S. treasury yield,
adjusted quarterly, and matures on June 30, 2000. Such amounts are expected to
be funded through operations and no outside financing is anticipated for this
obligation. However, there are no assurances that future operating results will
be sufficient to fund this obligation.
Future Financing Needs:
In connection with management's decision to adopt and implement a new and more
comprehensive clinical software product, the Company expects to incur additional
software and computer hardware costs during the third and fourth quarter of
fiscal 1997 of approximately $750,000. Such costs are expected to be financed
with the term loan from Summit Bank (discussed above), or 90 day Libo rate
payable in equal monthly installments with a maturity date.
Item 1. Legal Proceedings
Termination of Employment:
A former Medical Director of CAHS has asserted a claim, which was discussed in
the Company's Form 10-QSB for the quarter ended January 31, 1997.
12
<PAGE>
CAREADVANTAGE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Potential Uninsured Exposure to Litigation:
On or about March 22, 1996, an action entitled Francis X. Bodino v. BCBSNJ and
CHCM (the "Bodino Action") was filed in the Law Division of the Superior Court
of New Jersey in Hudson County. The complaint alleges misrepresentations with
respect to the type and amount of coverage afforded by Mr. Bodino's policy with
BCBSNJ, specifically with respect to coverage for heart transplantation. The
complaint also alleges that representations made on behalf of BCBSNJ by an
employee of CHCM led Mr. Bodino's surgeon to believe that contractually excluded
heart transplant coverage was available. The complaint demands a variety of
money damages, as well as punitive damages, against both defendants. The
complaint also contains a claim for treble damages and counsel fees under the
New Jersey Consumer Fraud Act. BCBSNJ is presently defending the Bodino Action
on behalf of itself and CHCM, and has denied liability in all respects and has
specifically denied that the policy purchased by Mr. Bodino covered heart
transplantation or that any misrepresentations or fraud occurred. BCBSNJ and
CHCM have filed a motion for summary judgment, which remains pending as to all
claims and is subject to further discovery. The Company, based upon the advice
of its counsel, has insufficient information, at present, to evaluate CHCM's
potential exposure, if any, in this litigation.
At the time of the events underlying the Bodino Action, CHCM was a subsidiary of
BCBSNJ and had been engaged by the Company, through CAHS, to provide certain
staff and assistance to CAHS in support of CAHS's obligation to provide
specified services for BCBSNJ, all in accordance with the terms of an Interim
Services Agreement dated as of April 1, 1995 by and among BCBSNJ, CHCM, the
Company and CAHS (the "Interim Services Agreement"). By letter dated February
15, 1996, counsel for Mr. Bodino gave written notice to CHCM contesting the
denial of coverage and threatening litigation against CHCM and BCBSNJ. The
Company and CAHS purchased CHCM on February 22, 1996. The Company did not
maintain insurance coverage that would cover claims against BCBSNJ or CHCM
arising from events occurring prior to February 22, 1996, which might constitute
a breach under the Interim Services Agreement. The Company has been informed by
BCBSNJ that BCBSNJ has notified its carrier of the claim and the carrier has
advised BCBSNJ that certain policy exclusions may be applicable to preclude
coverage for the claimed damages, either in whole or in part. BCBSNJ has further
asserted that it does not believe any such exclusions are applicable and that it
has furnished additional information to the carrier in support of its position.
The Company, based upon the advice of counsel, is not presently able to
determine whether the Bodino Action might result in any loss to the Company or
CHCM and, if so, whether any such loss would be material.
Item 2. Changes in Securities
On January 5, 1997, the Company became contractually obligated to issue CW
Ventures and BCBSNJ 25,914,222 and 24,242,337 shares of common stock of the
Company, respectively, pursuant to the terms of the CW Note and the BCBSNJ Note.
Such shares were issued by the Company to CW Ventures and BCBSNJ on February 27,
1997 after the Company's compliance with state blue sky laws. The offer and sale
of these shares were not registered under the Securities Act of 1933, as
amended. These shares were issued pursuant to the exemption contained in Section
4(2) of the Securities Act of 1933, as amended.
Item 6. Exhibits and Reports on Form 8-K
Exhibits - No. 10(a) - "Form of Employment Agreement with Thomas Riley" and
Side Letter
Exhibits - No. 10(b) - "First Amendment and Restatement of Services Agreement
with BCBSNJ"
Exhibits - No. 10(c) - "Joint Services Agreement with Allied Health Group,
Inc."
Exhibits - No. 10(d) - "Consulting Agreement with Coordinated Health Partners,
Inc."
Exhibits - No. 10(e) - "Agreement with Medigroup of New Jersey, Inc. and
Allied Health Group, Inc." and Side Letter
Exhibits - No. 10(f) - "Credit Agreement with Summit Bank and BCBSNJ"
Exhibits - No. 10(f)(1)- "Revolving Credit Note"
Exhibits - No. 10(f)(2)- "Term Note"
Exhibits - No. 10(f)(3)- "Guaranty Agreement"
Exhibits - No. 10(f)(4)- "Pledge Agreement"
Reports on Form 8-K -- None
13
<PAGE>
CAREADVANTAGE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CareAdvantage, Inc.
(Registrant)
June 19, 1997 /s/ Thomas P. Riley
----------------------------------------
Thomas P. Riley
President and Chief Executive Officer
Acting Chief Financial Officer
14
EMPLOYMENT AGREEMENT
AGREEMENT made as of the 10th day of June, 1997 between CAREADVANTAGE,
INC., a Delaware corporation with its principal offices at 485-C Route 1 South,
Iselin, New Jersey 08830 (the "Company"), and Thomas P. Riley, with a permanent
residence located at 3 Long Ridge Lane, Ipswich, Massachusetts 01938
("Executive").
W I T N E S S E T H:
WHEREAS, the Company desires that Executive shall continue in the
employment of the Company, and Executive is willing to continue such employment,
upon the terms and conditions set forth in this Agreement; and
WHEREAS, Executive has agreed to forego the receipt of options to purchase
shares of the Common Stock of the Company that previously had been offered by
the Company to Executive;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements hereinafter set forth, the parties hereto, intending to be
legally bound, hereby agree as follows:
1. Employment. The Company shall employ Executive, and Executive shall
serve the Company, upon the terms and conditions hereinafter set forth.
2. Term. The employment of Executive by the Company hereunder shall
commence on the date hereof and shall continue until December 31, 1998;
provided, however, that the Company may terminate Executive's employment
hereunder for any reason, and Executive may terminate his employment hereunder
for any reason, in each case upon not less than 30 days' prior written notice to
the other. For purposes hereof, the period of Executive's employment hereunder
is referred to as the "Term".
3. Duties. During the Term, Executive shall serve as President and Chief
Executive Officer of the Company, with such duties and responsibilities as are
consistent with such positions, and shall so serve faithfully and to the best of
his ability, under the direction and supervision of the Company's Board of
Directors (the "Board"). Executive shall devote a majority of his business time
and attention to his duties hereunder.
<PAGE>
4. Compensation and Benefits.
(a) Compensation. As of the date of this Agreement and during the
Term, the Company shall pay to Executive a salary at the rate of $275,000 per
annum, payable in accordance with the Company's customary payroll practices. If
Executive shall remain employed by the Company on June 30, 1997, the Company
shall pay Executive a bonus of $100,000.
(b) Benefits and Perquisites. During the Term and, in the event of
Executive's termination of his employment hereunder pursuant to Section 2 or the
Company's termination of Executive's employment hereunder pursuant to Section 2
other than as a result of Executive's wilful misconduct (either such event being
referred to as a"NonFault Termination"), for a period of 12 months after the
date of such Non-Fault Termination (but, in respect of such 12 month period,
only to the extent that Executive has not obtained other employment that
provides comparable benefits), the Company shall pay the costs for Executive's
participation in any and all life insurance, medical insurance, disability
insurance and employee benefit plans that are made available during the Term by
the Company to other senior executives or senior employees of the Company to the
extent that Executive qualifies under the eligibility provisions of such plan or
plans.
(c) Vacation. Executive shall be entitled to paid vacation days which
shall accrue from June 3, 1996 (the "Employment Commencement Date"), the date
Executive commenced employment with the Company, at the rate of 30 days per
annum. Such vacation days shall be taken consecutively or in segments, and at
such times, as shall be reasonably determined by Executive. In the event that
all accrued and unused vacation days shall not have been taken by Executive
during the Term, the Company shall pay to Executive upon the conclusion of the
Term a lump sum payment equal to the number of accrued and unused vacation days
multiplied by $1,200.
(d) Travel and Business Expenses. Upon submission of itemized expense
statements in accordance with past practice, Executive shall be entitled to
prompt reimbursement for reasonable travel and other business expenses incurred
by Executive in the performance of his duties hereunder, including, but not
limited to, reasonable out-of-pocket living expenses incurred while Executive is
residing in the Iselin, New Jersey area and airfare between Ipswich,
Massachusetts or such other location as then constitutes Executive's permanent
residence and Iselin, New Jersey.
2
<PAGE>
(e) Certain Reimbursements. It is acknow- ledged that Executive (i) is
continuing to receive certain payments pursuant to a certain Noncompete and
Confidentiality Agreement dated as of January 27, 1995 between Executive and
Charter Medical Corporation ("Charter") and (ii) is a participant in the Charter
Execuflex Benefit Plan. In the event that Charter shall reduce or eliminate the
amount paid to Executive pursuant to such Agreement or Executive's right to all
or a portion of his capital account under such Plan in accordance with the
respective terms thereof as a result of the employment of Executive by the
Company, the Company shall pay to Executive the difference between the amount to
which he would have been entitled thereunder but for such reduction or
elimination and the amount paid or payable by Charter. Such payments shall be
made to Executive promptly following his submission of a written request
therefor.
(f) Non-Fault Termination. In the event of a Non-Fault Termination,
Executive shall be entitled to receive, and the Company agrees to pay to
Executive, in accordance with the company's customary payroll practices, the
salary that would otherwise have been payable to him hereunder during the 12
months following the date of such Non-Fault Termination and, except as provided
in Section 4(b), Executive shall have no further rights to compensation
hereunder (except for any compensation accrued and unpaid as of the date of
termination of employment).
(g) Termination by the Company for Cause. In the event that the
Company terminates Executive's employment hereunder as a result of Executive's
wilful misconduct, Executive shall have no further rights to compensation
hereunder (except for any compensation accrued and unpaid as of the date of
termination of employment).
5. Deductions and Withholding. Executive agrees that the Company shall
withhold from any and all payments required to be made to Executive pursuant to
this Agreement all federal, state, local and/or other taxes which the Company
determines are required to be withheld in accordance with applicable statutes
and/or regulations from time to time in effect.
6. Indemnification; Insurance: Litigation.
(a) The Company will indemnify Executive to the fullest extent
permitted by law (or the certificate of incorporation or by-laws of the Company,
whichever affords the greatest protection to Executive) against all costs,
charges and expenses whatsoever incurred or sustained by him
3
<PAGE>
or his legal representatives in connection with any action, suit or proceeding
to which he may be made a party by reason of his being or having been at any
time (before, during or after the Term) a director, officer, employee or agent
of the Company, or a consultant or advisor to the Company, or by reason of any
action at any time taken by him on behalf of the Company.
(b) Advancement of Expenses. Expenses and costs (including a
reasonable retainer and advance against disbursements) incurred by Executive in
connection with any matter with respect to which he is entitled to
indemnification shall be paid by the Company in advance of the final disposition
of such action, suit or proceeding upon receipt of an undertaking by or on
behalf of Executive to repay such amount if it shall ultimately be determined
that he is not entitled to be indemnified by the Company as authorized by this
Section 6.
(c) Indemnification Not Exclusive. The provisions of this Section 6
shall not limit or restrict in any way the power of the Company to indemnify or
advance expenses and costs to Executive in any other way permitted by law or be
deemed exclusive of, or invalidate, any right to which Executive may be entitled
under any law, provisions of the Company's certificate of incorporation or
by-laws, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in Executive's capacity as an officer, director,
consultant, advisor, employee or agent of the Company and as to action in any
other capacity while holding any such position.
(d) Accrual of Claims; Successors. The indemnification provided or
permitted under this Section 6 shall apply in respect of any expense, cost,
judgment, fine, penalty or amount paid in settlement, whether or not the claim
or cause of action in respect thereof accrued or arose before or after the
effective date of this Section 6. Executive's indemnification under this Section
6 shall continue after he shall have ceased to be a director, officer,
consultant, advisor, employee or agent and shall inure to the benefit of his
heirs, distributees, executors, administrators and other legal representatives.
(e) Insurance. The Company shall maintain, during the Term and for six
years thereafter, directors' and officers' liability insurance covering
Executive with respect to acts and omissions occurring during the period of time
commencing on the Employment Commencement Date and ending upon the conclusion of
the Term ("D&O Insurance"), on terms no less favorable to Executive than the
most favorable
4
<PAGE>
terms of such insurance (in terms of coverage) maintained in effect by the
Company at any time during the Term. The amount of the D&O Insurance during the
Term and for six years thereafter shall be equal to (i) at least $3 million (the
amount of coverage on the date of this Agreement) or (ii) if the Company
increases the amount of D&O Insurance during the Term, the amount to which the
D&O Insurance is so increased. The Company shall use commercially reasonable
efforts to obtain, as soon as practicable after the date hereof, D&O Insurance
with increased limits of liability and lower deductibles than those in effect on
the date hereof.
(f) Litigation. In the event of any litigation or other proceeding
between the Company and Executive with respect to the subject matter of, or the
enforcement of rights under, this Agreement, the Company shall reimburse
Executive for all costs and expenses related to such litigation or proceeding,
including reasonable attorneys' fees and expenses, provided that the litigation
or proceeding results in either a settlement requiring the Company to make a
payment to the Executive or a judgment in favor of Executive.
7. Covenant Not to Compete. Executive agrees that, during the Non-Compete
Period (as hereinafter defined), Executive shall not, directly or indirectly,
without the prior written consent of the Company, participate, or make any
financial investment in, or become employed by or render consulting, advisory or
other services to or for any person, firm, corporation or other business
enterprise (a "Competitor"), which is engaged, directly or indirectly, in the
business of providing medical utilization management services in the states in
which the Company has entered into contracts to provide such services; provided,
however, that the foregoing shall not apply to any employment, consulting,
advisory or other services with the parent company, a division or a subsidiary
of a Competitor which parent company, division or subsidiary is not itself a
Competitor and, provided further, that nothing contained in this Section 7 shall
be construed to preclude Executive from making any investment in the securities
of any business enterprise if such securities are traded on a national
securities exchange or in the over-the-counter market in the United States or on
any foreign securities exchange and Executive's holdings of such securities
represent, at the time of acquisition, not more than 5% of the aggregate voting
power of such business enterprise. For the purposes hereof, "Non-Compete Period"
shall mean the Term and, in the event of any Non-Fault Termination or
termination of Executive's employment by the Company for wilful misconduct, the
12-month period following the end of the Term.
5
<PAGE>
8. Confidential Information. At the end of the Term, Executive shall
promptly return all Confidential Information (as hereinafter defined) held or
used by Executive in note, memorandum, print, letter, report or other written
form to the Company, including all copies thereof, or promptly destroy such
Confidential Information, including all copies thereof. For the purposes hereof,
"Confidential Information" shall mean confidential information of the Company,
including, without limitation, strategic plans, business plans, marketing plans,
financial information, management information, the identity of customers and
prospective customers, in each case except for such information that has become
public knowledge (other than as a result of the Executive's breach of his
obligations to the Company).
9. Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be delivered personally or sent by
registered or certified mail, return receipt requested, to the other party
hereto at his or its address as set forth at the beginning of this Agreement or
as otherwise designated pursuant to the following sentence. A copy of any
notice, request, demand or other communication hereunder to the Company shall be
sent to each of (a) Weil, Gotshal & Manges LLP, 767 Fifth Avenue, New York, New
York 10153, Attention: David E. Zeltner, Esq. and (b) Epstein, Becker & Green,
250 Park Avenue, New York, New York 10177, Attention: Paul D. Squire, Esq.
Either party may change the address to which notices, requests, demands and
other communications hereunder or any copies thereof shall be sent by sending
written notice of such change of address to the other party.
10. Assignability and Binding Effect. This Agreement shall inure to the
benefit of and shall be binding upon the heirs, executors, administrators,
successors and legal representatives of Executive, and shall inure to the
benefit of and be binding upon the Company and its successors and assigns.
Notwithstanding the foregoing, the obligations of Executive may not be delegated
and Executive may not assign, transfer, pledge, encumber, hypothecate or
otherwise dispose of this Agreement, or any of his rights hereunder, and any
such attempted delegation or disposition shall be null and void and without
effect.
11. Prior Agreements. This Agreement cancels and supersedes any and all
prior agreements and understandings between Executive and the Company respecting
the employment of Executive by the Company.
6
<PAGE>
12. Complete Understanding; Amendment. This Agreement constitutes the
complete understanding between the parties with respect to the employment of
Executive here- under, and no statement, representation, warranty or covenant
has been made by either party with respect thereto except as expressly set forth
herein. This Agreement shall not be altered, modified, amended or terminated
except by written instrument signed by each of the parties hereto. Waiver by
either party hereto of any breach hereunder by the other party shall not operate
as a waiver of any other breach, whether similar to or different from the breach
waived.
13. Governing Law. This Agreement shall be gov- erned by and construed in
accordance with the laws of the State of New Jersey.
14. Section Headings. The section headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpreta tion of this Agreement.
15. Severability. If any provision of this Agreement or the application of
any such provision to any party or circumstances shall be determined by any
court of competent jurisdiction to be invalid and unenforceable to any extent,
the remainder of this Agreement or the application of such provision to such
person or circumstances other than those to which it is so determined to be
invalid and unenforceable, shall not be affected thereby, and each provision
hereof shall be validated and shall be enforced to the fullest extent permitted
by law.
16. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which taken
together shall constitute but one and the same agreement.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto set their hands as of the day and
year first above written.
CAREADVANTAGE, INC.
By:___________________________
Name:
Title:
______________________________
Thomas P. Riley
8
<PAGE>
June 10, 1997
Mr. Thomas P. Riley
3 Long Ridge Lane
Ipswich, Massachusetts 01938
Re: CareAdvantage, Inc.
Dear Mr. Riley:
Reference is hereby made to the Employment Agreement, dated as of even date
herewith, between CareAdvantage, Inc. (the "Company") and you.
Blue Cross and Blue Shield of New Jersey, Inc. (together with its
affiliates, "BCBSNJ") is the beneficial owner of 37,617,420 shares of common
stock of the Company ("Shares") and CW Ventures II, L.P. (together with its
affiliates, "CW") is the beneficial owner of 37,784,087 Shares. In order to
induce you to continue in the employment of the Company as provided in the
Employment Agreement, the undersigned hereby agrees as follows:
1. In the event that, on or prior to July 1, 1999, (i) either BCBSNJ or CW
shall sell or otherwise dispose of 30% or more of the number of Shares
beneficially owned by it on the date hereof (as such number shall be
appropriately adjusted to reflect any stock splits, consolidations or similar
changes in the Company's capitalization) in one transaction or series of
transactions (other than to an affiliate to such party), or (ii) BCBSNJ and CW
shall sell or otherwise dispose of 50% or more of the aggregate number of Shares
beneficially owned by them on the date hereof (subject to adjustment as
aforesaid) in one transaction or in a series of transactions (other than to an
affiliate of such respective party) for a price per Share that is equal to the
amount set forth in the column entitled "Purchase Price Per Share" below (such
price per Share shall include the fair market value of non-cash consideration
and shall be subject to adjustment as hereinafter provided), the party or
parties effecting such sale or other disposition shall pay to you, in the
aggregate, a bonus equal to the amount set forth opposite such price per Share
in the column entitled "Bonus", such bonus to be payable to you upon the closing
of such transaction.
<PAGE>
June 10, 1997
Page 2
Purchase Price Per Share Bonus
------------------------ -----
$0.15 $150,000
0.16 185,000
0.17 220,000
0.18 260,000
0.19 300,000
0.20 340,000
0.21 380,000
0.22 420,000
0.23 460,000
0.24 500,000
0.25 and above 550,000
Effective July 1, 1998, each Purchase Price Per Share referred to above shall
increase by 15% (rounded to the nearest whole cent). For purposes of
illustration, the Purchase Price Per Share that would entitle you to a $150,000
bonus is $0.15 on the date hereof and $0.17 effective July 1, 1998. Each of
BCBSNJ and CW shall be deemed to have sold or otherwise disposed of on or prior
to July 1, 1999 any Shares that they agreed to sell or otherwise dispose of
prior to such date (by binding agreement, non-binding letter of intent or
otherwise) and which transaction is consummated subsequent to such date.
2. Anything to the contrary herein contained notwithstanding, in the event
that CW transfers beneficial ownership of any Shares to BCBSNJ pursuant to
arrangements contemplated between them on the date hereof, for all purposes of
this letter agreement, each of BCBSNJ and CW shall be deemed to own on the date
hereof the respective numbers of Shares that they own following such transfer
(plus the number of Shares, if any, that they otherwise dispose of after the
date hereof and prior to such transfer).
3. You shall not be liable to the undersigned for, and the undersigned
covenants and agrees not to sue you or any of your heirs, executors,
administrators, successors or assigns for, any act or omission (or any loss or
claim due to any act or omission) in your capacity as a director, officer,
employee, consultant or agent of the Company since June 3, 1996 except in the
event and to the extent you acted in bad faith and in a manner that you did not
reasonably believe to be in or not opposed to the best interests of the Company.
4. If the Company fails or is unable to pay the deductible in connection
with any claim under the Company's D&O Insurance (as defined in the Employment
Agreement) made by or on behalf of Executive, then BCBSNJ and CW agree that they
shall be
<PAGE>
June 10, 1997
Page 3
jointly and severally liable for the payment of, and they shall pay, the amount
of such deductible up to but not in excess of $300,000; provided, however, that,
as between BCBSNJ and CW, each shall be responsible for 50% of any such
deductible and, if either pays more than its share, it shall be entitled to
contribution from the other.
5. This letter agreement constitutes the complete understanding between the
parties with respect to the matters contemplated hereby, and no statement,
representation, warranty or covenant has been made by any party with respect
thereto except as expressly set forth herein. This letter agreement shall not be
altered, modified, amended or terminated except by written instrument signed by
each of the parties hereto. This letter agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which taken
together shall constitute but one and the same agreement.
6. This letter agreement shall be governed by and construed in accordance
with the laws of the State of Delaware.
If the foregoing is acceptable to you, kindly acknowledge you agree
therewith by signing and returning this letter to the undersigned.
Very truly yours,
BLUE CROSS AND BLUE SHIELD
OF NEW JERSEY
By:_________________________________
Name:
Title:
CW VENTURES II, L.P.
By: CW Partners III,
its general partner
By:_________________________________
Name:
Title:
Acknowledged and Agreed to:
__________________________________________
Thomas P. Riley
FIRST AMENDMENT AND RESTATEMENT
OF SERVICES AGREEMENT
FIRST AMENDMENT AND RESTATEMENT OF SERVICES AGREEMENT, dated as of June 13,
1997 (this "Agreement"), by and among CONTEMPORARY HEALTHCARE MANAGEMENT, INC.,
a New Jersey corporation ("CHCM"), BLUE CROSS AND BLUE SHIELD OF NEW JERSEY,
INC., a New Jersey health service corporation ("BCBSNJ"), CAREADVANTAGE HEALTH
SYSTEMS, INC., a Delaware corporation ("CAHS"), and CAREADVANTAGE, INC., a
Delaware corporation ("CAI").
W I T N E S S E T H :
WHEREAS, CHCM provides certain managed care services to managed care
organizations and others, including, without limitation, utilization review
services, utilization management services and certain technical, communication
and administrative support services in connection with the foregoing services
and the provision of health care services; and
WHEREAS, BCBSNJ provides indemnity health benefits and certain
administrative services to the Serviced Population (as hereinafter defined); and
WHEREAS, as of February 22, 1996 (the "Effective Date"), the parties
entered into an agreement (the "Original Agreement") wherein CHCM was retained
by BCBSNJ as BCBSNJ's exclusive provider of the Services (as hereinafter
defined) with respect to the Serviced Population; and
WHEREAS, the parties desire to amend and restate the Original Agreement,
effective as of the date first set forth above (the "Restatement Date");
NOW, THEREFORE, in consideration of the mutual representations, warranties,
covenants and undertakings of the parties hereto, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto, intending to be legally bound, do hereby agree
as follows:
<PAGE>
1. Definitions.
As used in this Agreement, the following terms shall have the following
meanings:
1.1. "Acceptable Policies" is defined in Section 14.3 hereof.
1.2. "Actual Current Year's Days" shall mean, for each Fully-Insured Market
Segment in any BCBSNJ Fiscal Year, the actual number of days incurred per
thousand members of the Serviced Population in such Fully-Insured Market Segment
during such BCBSNJ Fiscal Year.
1.3. "Actual Prior Year's Days" shall mean (i) for each Fully-Insured
Market Segment in any BCBSNJ Fiscal Year other than the 2000 BCBSNJ Fiscal Year,
the actual number of days incurred per thousand members of the Serviced
Population in such Fully-Insured Market Segment during the immediately preceding
BCBSNJ Fiscal Year and (ii) for each Fully-Insured Market Segment in the 2000
BCBSNJ Fiscal Year, the actual number of days incurred per thousand members of
the Serviced Population in such Fully-Insured Market Segment during the first
six (6) months of the 1999 BCBSNJ Fiscal Year.
1.4. "Actuarial Cost Per Day" shall mean Nine Hundred Eighty-Seven Dollars
($987), unless otherwise agreed by the parties.
1.5. "Affiliate" shall mean, with respect to any party hereto, any Person
that, directly or indirectly, through one or more intermediaries, controls, or
is controlled by or is under common control with such party. As used in this
Section 1.5, "control" shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of such
Person, whether through the ownership of voting securities, by contract or
otherwise.
1.6. "Agreement" is defined in the introductory paragraph hereof.
1.7. "Annualized Bonus Amount" shall mean, for any BCBSNJ Fiscal Year as of
any date of calculation, twenty-five percent (25%) of the sum of the following
products, calculated separately for each Fully-Insured Market Segment in the
applicable BCBSNJ Fiscal Year:
(a) the difference, whether positive or negative, calculated by
subtracting, for such Fully-Insured Market Segment, the Actual Current
Year's Days from the Target Days; multiplied by
(b) the Actuarial Cost Per Day; multiplied by
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(c) the average number of members of the Serviced Population in such
Fully-Insured Market Segment for such BCBSNJ Fiscal Year divided by One
Thousand (1,000).
1.8. "BCBSNJ" is defined in the introductory paragraph hereof.
1.9. "BCBSNJ Fiscal Quarter" shall mean each full or partial fiscal quarter
of BCBSNJ occurring during or after the Term.
1.10. "BCBSNJ Fiscal Year" shall mean each full or partial fiscal year of
BCBSNJ occurring during the Term.
1.11. "BCBSNJ Policies" is defined in Section 5.1(a)(i) hereof.
1.12. "Brennan" is defined in Section 10.2(a)(vii) hereof.
1.13. "CAHS" is defined in the introductory paragraph hereof.
1.14. "CAI" is defined in the introductory paragraph hereof.
1.15. "CHCM" is defined in the introductory paragraph hereof.
1.16. "CHCM's Costs" shall mean, with respect to any item, the direct cost
of such item to CHCM (or CAI or CAHS, as the case may be), net of any related
savings (the "Net Costs") plus ten percent (10%) of such Net Costs as an
allowance for general and administrative costs, plus ten percent (10%) of such
Net Costs as an allowance for profit.
1.17. "Confidential Information" shall mean:
(a) the UR/UM Materials;
(b) any forms, policies, procedures, manuals and materials of any kind
created, owned or provided by a party hereto in connection with, or with
respect to, the Services;
(c) any information or data relating to the Services or this Agreement
that is made available by a party hereto to another party hereto and (i) is
marked confidential, or at the time of its being made available, is
otherwise indicated to be confidential, or (ii) within thirty (30) days
after such information or data is first made available, is indicated in
writing to be confidential;
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<PAGE>
(d) any derivative works based on the materials, information or data
described in subclauses (b) and (c) above; and
(e) with respect to the confidentiality obligations hereunder of CHCM,
CAHS and CAI only, (i) Patient Information, (ii) any and all information or
data (whether patient specific, account specific, aggregates thereof or
otherwise) relating to the cost or utilization of health care services
provided to, or received by, the Serviced Population or any other
individual covered by any BCBSNJ health care benefit plan, (iii) any and
all information or data relating to the health of the Serviced Population
or any other individual covered by any BCBSNJ health care benefit plan
(including, without limitation, an individual's health care history,
diagnosis, condition, treatment or evaluation), (iv) any and all lists (or
any portions thereof) of individuals covered by any BCBSNJ health care
benefit plan and the groups to which such individuals belong, (v) any and
all software data that is the property of BCBSNJ, (vi) any and all
information or data obtained or accessed by CHCM, CAI or CAHS as a result
of, or by means of, the on-line access to the information systems of BCBSNJ
provided pursuant to Section 6.2 hereof, (vii) any and all information or
data created or generated in connection with the provision of Services
hereunder and (viii) any derivative works based on the foregoing
information, data or materials described in subclauses (i) through (vii)
above;
provided, however, that Confidential Information shall not mean information or
data that: (w) was previously known to the receiving party at the time of
disclosure and is not subject to an existing agreement of confidence between the
applicable parties, (x) is subject to an existing agreement of confidence
between the applicable parties, (y) is publicly known through no act or omission
by the receiving party or (z) otherwise is disclosed to the receiving party by a
third party having the legal right to make such disclosure.
1.18. "Contract" shall mean any contract, agreement, lease, license or
other legally binding commitment, obligation or arrangement, whether oral or
written, express or implied.
1.19. "Customer Dissatisfaction" shall mean (a) a materially adverse
aggregate response regarding the quality of Services performed by, or the
personnel or staff of, CHCM, CAI and/or CAHS, as measured by customer
satisfaction surveys ("Customer Surveys"), the form and substance of which have
been approved by CHCM, which approval shall not be unreasonably withheld,
conducted (i) in accordance with all applicable BCBSNJ Policies and/or
Performance Standards and (ii) by an independent Person specializing in the
conduct of surveys, reasonably acceptable to and mutually agreed by BCBSNJ and
CHCM (a "Survey Person"), or (b) a materially adverse series of responses or
complaints received by BCBSNJ with respect to the Serviced Population regarding
the quality of Services performed by, or the personnel or staff of, CHCM, CAI
and/or CAHS.
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<PAGE>
1.20. "Customer Surveys" is defined in Section 1.19 hereof.
1.21. "Damages" is defined in Section 14.1(a) hereof.
1.22. "Designated Employees" is defined in Section 5.5 hereof.
1.23. "Equity Securities" shall have the meaning ascribed to such term in
Section 3 of the Exchange Act.
1.24. "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Securities and Exchange Commission
thereunder, all as the same shall be in effect from time to time.
1.25. "Exposed Lives" shall mean, as to any Market Segment, the agreed
number of Persons included within such Market Segment for purposes of
calculating payments required to be made pursuant to Section 4.1(b)(ii) hereof,
based on BCBSNJ's conversion factors for calculating Exposed Lives from Exposed
Subscribers. The aggregate number of Exposed Lives in all Market Segments shall
be deemed to be Seven Hundred Eighty Thousand (780,000) for the nine-month
period commencing January 1, 1997, distributed as follows among the Market
Segments, based on the following number of Exposed Subscribers:
Market Segment Exposed Lives Exposed Subscribers
-------------- ------------- -------------------
Individual Under 65 CMM 64,762 38,784
Individual Under 65 non-CMM 13,493 9,107
Small Employer 72,964 35,391
Corporate 50-99 23,139 10,095
Corporate 100+ 282,495 110,413
National Accounts 46,683 19,681
State Account 216,135 91,426
Other Government Accounts 60,329 23,013
------- -------
Total 780,000 337,910
5
<PAGE>
The number of Exposed Lives in each Market Segment shall be updated by BCBSNJ,
and BCBSNJ shall provide written notice of such update to CHCM, (i) on each
September 1 and March 1 during the Term, beginning on September 1, 1997, and
(ii) on the first day of such other months as may be appropriate if, due to
changes in the size of the Serviced Population or otherwise, the aggregate
number of Exposed Lives is proposed to change by more than five percent (5%)
from its then current level. Any such update shall be effective beginning in the
first Service Month following the month in which BCBSNJ provides notice of the
update to CHCM; provided, however, that in any case where BCBSNJ gives notice
later than the first day of the required month, such update shall be effective
in the second Service Month following the month in which BCBSNJ provides notice
of the update to CHCM.
1.26. "Exposed Subscribers" shall mean the Exposed Lives excluding those
covered individuals that are dependents of enrollees as determined by BCBSNJ.
1.27. "For Cause Event of Termination" is defined in Section 10.2(a)
hereof.
1.28. "Fully-Insured Market Segment" shall mean the following Market
Segments and each other fully-insured Market Segment as to which BCBSNJ gives
notice to CHCM from time to time during the Term in accordance with the terms
hereof in its sole and absolute discretion:
(a) Individual Under 65 CMM;
(b) Individual Under 65 non-CMM;
(c) Small Employer; and
(d) Corporate 50-99.
1.29. "GAAP" shall mean generally accepted accounting principles (as such
principles may change from time to time) applied on a consistent basis, which
shall include, but not be limited to, the official interpretations thereof by
the Financial Accounting Standards Board, its predecessors or successors.
1.30. "Governmental Authorities" shall mean any and all governmental,
legislative, administrative, judicial (including, without limitation, as
pertaining to arbitration tribunals or other bodies) or regulatory agencies,
commissions, boards, bureaus, departments, bodies, instrumentalities or other
authorities having jurisdiction over any or all of the parties hereto and/or the
transactions contemplated by this Agreement.
1.31. "Guaranteed Obligations" is defined in Section 9.1 hereof.
6
<PAGE>
1.32. "Indemnified Party" is defined in Section 14.2 hereof.
1.33. "Indemnifying Party" is defined in Section 14.2 hereof.
1.34. "Interim Payment" shall mean Eight Hundred Thirty-Three Thousand,
Three Hundred Thirty-Three Dollars ($833,333).
1.35. "Interim Services Agreement" shall mean the Interim Services
Agreement, dated as of April 1, 1995 by and among CHCM, BCBSNJ, CAHS and CAI, as
in effect on the date hereof.
1.36. "Law" shall mean any law (including, without limitation, common law
and Federal, state and local law), constitution, statute, treaty, rule,
regulation, code, ordinance, order, injunction, writ, decree or award of any
Governmental Authority.
1.37. "License" shall mean any certificate, license, permit, right,
application, filing, registration, franchise, approval or other authorization
necessary for the provision of Services hereunder.
1.38. "Local 54 Contract" shall mean the Administrative Services Contract
commencing October 1, 1996 between BCBSNJ and the Union.
1.39. "Local 54 Process" shall mean the provision by CHCM of such services
as are contemplated by the Local 54 Contract.
1.40. "Market Segment" shall mean each market segment listed on Schedule
1.40 attached hereto and each other market segment to be included hereunder of
which BCBSNJ gives notice to CHCM from time to time during the Term in
accordance with the terms hereof in its sole and absolute discretion.
1.41. "Marks" shall mean any trademark, trade name, servicemark or service
name owned and/or utilized by any or all of BCBSNJ and its Affiliates.
1.42. "MEDecision License" is defined in Section 11.4 hereof.
1.43. "Modified Day" shall mean a day of inpatient hospitalization claimed
with respect to an Exposed Life following inpatient admission, but for which a
determination is made by CHCM that such day of inpatient hospitalization is not
medically appropriate, provided that such determination is maintained through a
completed appeals process. Any determination overturned on appeal for
administrative reasons, rather than for medical appropriateness reasons, shall
be deemed to have been maintained through a completed
7
<PAGE>
appeals process unless the basis for such determination having been overturned
is a failure by CHCM to satisfy its obligations under this Agreement.
1.44. "Moral Turpitude" shall mean any act or omission that constitutes a
felony under any applicable Law or civil fraud or deceit.
1.45. "Original Agreement" is defined in the recitals hereto.
1.46. "Patient Information" shall mean any and all information or data
relating to the health of any member of the Serviced Population (including,
without limitation, an individual's health care history, diagnosis, condition,
treatment or evaluation) and any derivative works based on the foregoing
information or data.
1.47. "Performance Standards" shall mean:
(a) all performance standards and measures required by any applicable
Law (including, for this purpose only, at the discretion of the Senior Vice
President Health Industry Services of BCBSNJ, any Law applicable to health
maintenance organizations in the State of New Jersey);
(b) all performance standards and measures customary for statewide or
regional industry practice;
(c) all performance standards and measures agreed to by BCBSNJ and any
of its customers from time to time during the Term of which BCBSNJ gives
notice to CAI, CHCM and CAHS in accordance with the terms hereof; and
(d) all performance standards and measures set forth on Schedule 1.47
attached hereto;
provided, however, that BCBSNJ agrees to pay to CHCM CHCM's Costs attributable
to any changes subsequent to the Effective Date in the performance standards and
measures identified in clause (c) of this Section 1.47 (other than those changes
made at the request or recommendation of either CAI, CAHS or CHCM which are not
likely, in BCBSNJ's reasonable judgment, to enhance the benefits to BCBSNJ and
its customers expected to be generated by operation of this Agreement).
1.48. "Person" shall mean any individual, partnership, firm, enterprise,
corporation or other entity.
1.49. "Post-Termination License Agreement" is defined in Section 10.3(a)(i)
hereof.
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1.50. "Restatement Date" is defined in the recitals hereto.
1.51. "Restrictive Covenants" is defined in Section 13.1 hereof.
1.52. "Serviced Population" shall mean:
(a) any and all individuals covered by BCBSNJ indemnity health
benefits plans;
(b) where specified by any applicable BCBSNJ customer, all applicable
individuals covered by an administrative services contract between such
customer and BCBSNJ;
(c) where specified by any applicable BCBSNJ customer, any and all
individuals covered by "Administrative Services Only" arrangements; and
(d) all applicable covered individuals with respect to any new
categories of BCBSNJ customers requiring utilization review or utilization
management services;
in each case, if and to the extent BCBSNJ gives notice to CHCM from time to time
during the Term in its sole and absolute discretion.
1.53. "Service Month" shall mean each calendar month during the Term.
1.54. "Services" shall mean, in connection with the provision of health
care:
(a) development of review protocols, guidelines and standards, which
must be approved by BCBSNJ in advance of their application and which BCBSNJ
may, from time to time, in its sole and absolute discretion, modify;
(b) pre-certification services, including, without limitation,
pre-admission review, pre-certification of selected surgical/diagnostic
procedures, pre-certification of selected outpatient/ambulatory procedures,
assignment of initial length of hospital stay;
(c) concurrent review services, including, without limitation,
appropriate concurrent inpatient service review, regular reassessment of
length of stay assignment, discharge planning support and outpatient
service coordination;
(d) procedure certification/mandatory second surgical opinion
services, including, without limitation, provision for telephonic
interviewing of patients and
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<PAGE>
their attending physicians for evaluation of proposed surgical and
diagnostic procedures with respect to appropriateness of care;
(e) large medical case management (including, without limitation,
management of medical cases involving long-term or catastrophic illnesses
to ensure cost-effective utilization of benefits), as such cases are
identified using BCBSNJ-approved criteria attached hereto as Schedule 1.54,
which criteria may be amended from time to time by BCBSNJ in its sole and
absolute discretion;
(f) focused and random retrospective review services for medical cases
that were or should have been subject to pre-certification or concurrent
services adequate to maintain optimal function of the other Services with
respect to such cases, and such retrospective review services shall
include, without limitation, retrospective medical record review, analysis
and evaluation of medical appropriateness, hospital admission and length of
stay trends, level and quality of care and changes in medical care
patterns;
(g) account education and relations services relating to utilization
review and utilization management, including, without limitation, provision
of communications materials to support the BCBSNJ marketing divisions in
their dealings with BCBSNJ customers and the Serviced Population, the cost
of such materials to be reasonably agreed upon by the parties (other than
utilization reporting materials prepared in the ordinary course of
business, which shall be provided without charge by CHCM);
(h) fulfillment of communication and reporting requirements,
including, without limitation, communication to BCBSNJ of all decisions
regarding medical appropriateness of pre-certification, concurrent review,
pre-procedure review and large medical case management;
(i) fulfillment of customer service requirements and responsibility
for direct communications with all BCBSNJ customers, Serviced Population,
patients and their families and with all physicians, hospitals and other
providers, in each case relating to Services;
(j) establishment and maintenance of required mechanisms for appeals
by members of the Serviced Population and provision of technical and
administrative support for BCBSNJ's appeals mechanisms;
(k) assisting BCBSNJ in the development of the utilization review and
utilization management components of future BCBSNJ products and lines of
business; and
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(l) any other services similar or ancillary to any of the foregoing
Services mutually agreed upon by BCBSNJ and CHCM;
as all of the foregoing is more fully described on Schedule 1.54A attached
hereto. To the extent of any inconsistency between the terms of Schedule 1.54A
hereto relating to the Services or the provision thereof and the terms of other
provisions of this Agreement, such terms of Schedule 1.54A hereto shall govern
and apply.
1.55. "Specialty Advisory Process" shall mean formation of regional
specialty advisory committees ("Committees") for, on average, two (2) clusters
of approximately five (5) network hospitals per cluster per six (6) month period
during the term of the Specialty Advisory Process involving medical specialists
from those hospitals in selected, high prevalence clinical specialties in the
development and implementation of length-of-stay parameters. Committees for each
cluster will be formed in three (3) or more specialties. Two (2) meetings of
each Committee in each hospital cluster will be held. After three (3) clusters
of hospitals have been involved, in each specialty, guidelines of the several
Committees will be melded. The Specialty Advisory Process will also include the
performance of matched specialty concurrent reviews focused on each hospital
cluster for which Committee meetings are held during any BCBSNJ Fiscal Quarter.
A twenty percent (20%) sample of concurrent reviews, approximately, will be
forwarded to consultants on retainer to CAI for review and discussion with
attending physicians.
1.56. "Survey Person" is defined in Section 1.19 hereof.
1.57. "Target Days" shall mean
(a) with respect to the 1997 BCBSNJ Fiscal Year, the difference
calculated by subtracting thirty-five (35) from the Actual Prior Year's
Days;
(b) with respect to the 1998 BCBSNJ Fiscal Year, the difference
calculated by subtracting twenty-five (25) from the Actual Prior Year's
Days;
(c) with respect to the 1999 BCBSNJ Fiscal Year, the difference
calculated by subtracting fifteen (15) from the Actual Prior Year's Days;
and
(d) with respect to the 2000 BCBSNJ Fiscal Year, the difference
calculated by subtracting fifteen (15) from the Actual Prior Year's Days.
1.58. "Term" is defined in Section 3 hereof.
1.59. "Termination Payment" is defined in Section 10.1(b)(i) hereof.
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1.60. "Union" shall mean the Hotel Employees and Restaurant Employees
International Union Welfare Fund.
1.61. "URAC" shall mean the Utilization Review Accreditation Commission or
its successors.
1.62. "UR/UM Materials" shall mean any and all (a) methods, processes,
manuals, trade secrets and other proprietary information used by CHCM in
rendering utilization review and utilization management services (or any other
Services or any other services similar or ancillary to any of the Services)
regardless of where provided, (b) software owned or used by CHCM and (c)
improvements, enhancements, modifications, updates and corrections with respect
to any of the foregoing, as and when same are released.
1.63. "Without Cause Termination Date" is defined in Section 10.1(a)
hereof.
2. Appointment of Exclusive Services Provider.
As of the Effective Date, BCBSNJ hereby appoints CHCM, and CHCM hereby
accepts appointment as, the exclusive provider of Services with respect to the
Serviced Population upon the terms and conditions set forth herein; provided,
however, it is hereby acknowledged that, subject to Section 15.4 hereof, CAHS or
CAI or a subcontractor may from time to time render Services hereunder.
3. Term.
The term of this Agreement (the "Term") shall commence on the Effective
Date and continue in effect until June 30, 2000, unless this Agreement is
earlier terminated pursuant to Section 10 hereof. The parties agree to commence
good faith discussions to extend this Agreement not later than June 30, 1999. In
the event that the parties do not agree to extend this Agreement by December 31,
1999, then CAI, CAHS and CHCM shall take such actions prior to the end of the
Term as may reasonably be requested by BCBSNJ to wind-up the relationship among
the parties as of the end of the Term. Notwithstanding any term or condition
contained in this Agreement to the contrary, none of the parties shall have any
obligations under this Agreement, including, without limitation, those
obligations arising under Section 4 hereof, prior to the Effective Date.
4. Compensation.
4.1. Compensation. In consideration for the Services rendered hereunder to
BCBSNJ and the performance of the other obligations under Section 5 hereof,
BCBSNJ shall compensate CHCM as follows:
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(a) Closing Payment. On the Effective Date, BCBSNJ shall pay to CHCM
an amount equal to the difference of:
(i) the product of (A) the Interim Payment multiplied by (B) the
number of full months between January 1, 1996 and the Effective Date;
minus
(ii) the net amount previously paid by BCBSNJ to CAHS under the
Interim Services Agreement with respect to any period commencing on or
after January 1, 1996.
(b) Monthly Service Fee.
(i) For each Service Month during the 1996 BCBSNJ Fiscal Year,
including the Service Month during which the Effective Date occurs,
BCBSNJ shall pay to CHCM, not later than fifteen (15) days following
the end of such Service Month, the Interim Payment.
(ii) For each Service Month commencing on or after January 1,
1997, BCBSNJ shall pay to CHCM, not later than fifteen (15) days
following the end of each Service Month, with respect to each Market
Segment identified on Schedule 1.40 attached hereto, the price set
forth thereon with respect to such Market Segment for the applicable
BCBSNJ Fiscal Year, multiplied by the corresponding number of Exposed
Subscribers in such Market Segment during the applicable Service
Month.
(c) Other Monthly Payments. In addition to amounts otherwise payable
to CHCM pursuant to this Section 4.1, BCBSNJ shall pay to CHCM, not later
than fifteen (15) days following the end of each Service Month:
(i) for each Service Month beginning on or after January 1, 1997,
but only during the pendency of the Local 54 Process as described in
Section 5.1(b) hereof, Five Thousand, Four Hundred Fifty-Eight Dollars
($5,458) per Service Month; provided, however, that amounts payable
pursuant to this clause (i) shall be reduced to the extent, if any,
that BCBSNJ is required to make any payments to the Union pursuant to
paragraph 2 of Section C of Schedule B to the Local 54 Contract; and
(ii) for each Service Month beginning on or after May 1, 1997,
but only during the pendency of the Specialty Advisory Process as
described in Section 5.1(c) hereof, Thirty-Three Thousand, Three
Hundred Thirty-Three Dollars ($33,333) per Service Month.
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(d) Quarterly Bonus Payment. For each BCBSNJ Fiscal Quarter during the
Term beginning on or after January 1, 1997, BCBSNJ shall pay to CHCM, not
later than seventy-five (75) days following the end of such BCBSNJ Fiscal
Quarter, an amount equal to sixty percent (60%) of one-fourth (1/4) of the
Annualized Bonus Amount for the corresponding BCBSNJ Fiscal Year, projected
as of the end of such BCBSNJ Fiscal Quarter, plus the amount (positive or
negative) calculated by subtracting (i) aggregate payments pursuant to this
clause (d) with respect to prior BCBSNJ Fiscal Quarters during such BCBSNJ
Fiscal Year from (ii) the amount calculated by multiplying sixty percent
(60%) of one-fourth (1/4) of the Annualized Bonus Amount for such BCBSNJ
Fiscal Year, projected as of the end of such BCBSNJ Fiscal Quarter, by the
number of prior BCBSNJ Fiscal Quarters during such BCBSNJ Fiscal Year. A
sample quarterly payment calculation is attached for illustrative purposes
only as Exhibit 4.1(d) hereto.
(e) Annual Bonus Adjustment.
(i) For each BCBSNJ Fiscal Year during the Term, beginning with
the 1997 BCBSNJ Fiscal Year, BCBSNJ shall pay to CHCM, not later than
(x) November 15 of the calendar year next succeeding such BCBSNJ
Fiscal Year, in the case of the 1997, 1998 and 1999 BCBSNJ Fiscal
Years, or (y) May 15, 2001, in the case of the 2000 BCBSNJ Fiscal
Year, an amount equal to the positive difference, if any, calculated
by subtracting:
(A) the aggregate amount previously paid by BCBSNJ to CHCM
with respect to such BCBSNJ Fiscal Year pursuant to clause (d) of
this Section 4.1; from
(B) the Annualized Bonus Amount for such BCBSNJ Fiscal Year,
calculated as of the end of the third BCBSNJ Fiscal Quarter
immediately following the end of such BCBSNJ Fiscal Year.
(ii) In the event that the difference calculated pursuant to
clause (i), above, is negative, then CHCM shall pay to BCBSNJ, not
later than the applicable date specified in clause (i), an amount
equal to the additive inverse of such difference.
(iii) In addition to any amount otherwise payable pursuant to
this clause (e) with respect to the 1997 BCBSNJ Fiscal Year, BCBSNJ
shall pay to CHCM, on or prior to November 15, 1998, the amount, if
any, that would have been payable as a "Bonus Payment" (as defined in
the Original Agreement) with respect to the 1996 BCBSNJ Fiscal Year if
each month in
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1996 had been a Service Month and such Bonus Payment had been
calculated in accordance with Section 4.1(c) of the Original
Agreement.
4.2. Shortfall Adjustment. In the event that the aggregate number of
Modified Days during the 1997 BCBSNJ Fiscal Year is not equal to or greater than
Twenty Thousand (20,000), then CHCM will pay to BCBSNJ, not later than February
15, 1998, the sum of Five Hundred Thousand Dollars ($500,000).
4.3. Special Compensation Provisions Applicable to 1996. CAI, CAHS and CHCM
acknowledge that BCBSNJ has paid CAHS and CHCM Ten Million Dollars
($10,000,000), in the aggregate, under the Interim Services Agreement and the
Original Agreement with respect to the 1996 BCBSNJ Fiscal Year. Simultaneously
with the execution and delivery of this Agreement, CHCM is executing and
delivering to BCBSNJ a promissory note, guaranteed by CAI and CAHS, secured to
the extent provided in, and otherwise in the form of, Exhibit 4.3 hereto, in the
principal amount of One Million, Eight Hundred Sixty-Two Thousand, Eight Hundred
Twenty-Three Dollars ($1,862,823), such amount representing the difference
calculated by subtracting from Ten Million Dollars ($10,000,000) the sum of:
(a) with respect to the first nine (9) months of the 1996 BCBSNJ
Fiscal Year, Five Million, Six Hundred Eighty-Nine Thousand, Ninety Dollars
($5,689,090), such amount representing the aggregate amount that would have
been payable as "Monthly Service Fees" (as defined in the Original
Agreement) with respect to the first nine (9) months of the 1996 BCBSNJ
Fiscal Year, if each such month had been a Service Month and such Monthly
Service Fees had been calculated in accordance with Section 4.1(b)(y) of
the Original Agreement; plus
(b) with respect to the last three (3) months of the 1996 BCBSNJ
Fiscal Year, Two Million, Fifteen Thousand Dollars ($2,015,000) in the
aggregate; plus
(c) with respect to the November 1996 and December 1996 Service
Months, Four Hundred Sixteen Thousand, Seven Hundred Twelve Dollars
($416,712) in the aggregate (the "Assumed 1996 Bonus"), such amount
representing the sum of:
(i) One Hundred Fifty-Four Dollars ($154) for each Modified Day
in excess of Five Hundred Eighty-Three (583) Modified Days, up to One
Thousand, Eighty-Four (1,084) excess Modified Days, during each such
Service Month; plus
(ii) One Hundred Nine Dollars ($109) for each Modified Day in
excess of One Thousand, Six Hundred Sixty-Seven (1,667) Modified Days
during each such Service Month;
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assuming Two Thousand, Seventy-Four (2,074) Modified Days in the
November 1996 Service Month and Two Thousand, Twenty (2,020) Modified
Days in the December 1996 Service Month; provided, however, that the
actual number of Modified Days in the November 1996 and December 1996
Service Months will be determined as of the date that is thirty (30)
days after the Restatement Date (the "Adjustment Date"), based on
information then available (such actual number of Modified Days, the
"Adjusted Days"), and (x) if the difference calculated by subtracting
the Assumed 1996 Bonus from the amount computed pursuant to the
foregoing formula using the Adjusted Days is greater than zero, then
BCBSNJ will immediately pay to CHCM the amount of such difference, and
(y) if such difference is less than zero, then CHCM will immediately
pay to BCBSNJ an amount equal to the additive inverse of such
difference; plus
(d) with respect to the Local 54 Process, Sixteen Thousand, Three
Hundred Seventy-Five Dollars ($16,375) in the aggregate.
4.4. Compensation Dependent Upon Execution. Notwithstanding the provisions
of Section 4.1 providing for the payment by BCBSNJ of fees and bonuses in 1997
and subsequent years, and notwithstanding the provisions of Section 4.3
providing for the repayment of certain amounts by CHCM, the parties acknowledge
that the amounts due under such sections would not have been due had they not
executed this First Amendment and Restatement of the Services Agreement.
4.5. Revision of Compensation Arrangements. Anything herein contained to
the contrary notwithstanding, the parties agree to commence good faith
discussions and use their respective best efforts, as promptly as practicable
following the Restatement Date and, in any event, within one hundred twenty
(120) days of the Restatement Date, to revise the compensation arrangements set
forth in this Section 4 so that, as revised, such arrangements fully compensate
CHCM for the cost of providing the Services hereunder (including reasonable
overhead and profit) while creating financial incentives to reduce the overall
costs of healthcare services (whether facility-based or otherwise) provided to
the Serviced Population, on a "per member per month" basis, in a manner
consistent with the parties' strategic and other business objectives.
4.6. Manner of Payment. All payments hereunder between any of the parties
hereto shall be payable when due hereunder at the receiving party's offices
identified in Section 15.3 hereof, as such offices may be changed from time to
time.
4.7. Survival. The terms and conditions of this Section 4 shall expressly
survive any termination of this Agreement and shall continue in full force and
effect thereafter.
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5. Service Responsibilities of CHCM.
As of the Effective Date, CHCM hereby covenants and agrees for the benefit
of BCBSNJ as follows:
5.1. Performance of Services.
(a) Compliance with Standards and Policies. During the Term, CHCM, in
accordance with its acceptance of its appointment as the exclusive provider
of Services with respect to the Serviced Population under Section 2 hereof,
shall:
(i) perform the Services and its other respective obligations
hereunder in accordance with, and subject to, the terms hereof
(including, without limitation, in accordance with, and subject to,
the Performance Standards) and all applicable BCBSNJ policies,
protocols, guidelines and procedures (as such policies, protocols,
guidelines and procedures may be changed by BCBSNJ from time to time,
in its sole and absolute discretion, the "BCBSNJ Policies"), and in
all respects to the reasonable satisfaction of BCBSNJ; and
(ii) without limiting the generality of the foregoing, promptly
make any and all reasonable changes in its performance of the Services
and its other obligations hereunder as may be reasonably requested by
BCBSNJ from time to time.
(b) Change of BCBSNJ Policies -- General. BCBSNJ agrees to pay to CHCM
CHCM's Costs attributable to any changes in the BCBSNJ Policies (other than
those changes made at the request or recommendation of either CAI, CAHS or
CHCM which are not likely, in BCBSNJ's reasonable judgment, to enhance the
benefits to BCBSNJ and its customers expected to be generated by operation
of this Agreement) made subsequent to the Effective Date and established
pursuant to this Section 5.1, including, without limitation, any such
changes made pursuant to clause (c) of this Section 5.1.
(c) Formalization and Change of BCBSNJ Policies -- Post-Restatement
Date. Each of the parties acknowledges that some BCBSNJ Policies will be
formalized and other BCBSNJ Policies will be changed, effective
approximately one hundred twenty (120) days after the Restatement Date, to
include appropriate procedural guidelines with respect to the timely and
accurate collection, processing and dissemination of relevant information
between and among CHCM, BCBSNJ, Persons providing healthcare services to
the Serviced Population and others in connection with CHCM's performance of
the Services hereunder, and:
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(i) to establish appropriate, related reporting requirements and
audit rights; and
(ii) to provide for the development and implementation of
corrective action plans following demonstrated non-compliance with any
such guidelines and to establish reasonable financial disincentives to
any violation by CHCM of any such guidelines, in each case, to the
extent that compliance with such guidelines is within CHCM's
reasonable control;
provided, however, that any such guidelines shall be subject to reasonable
agreement between the Senior Vice President - Health Industry Services of
BCBSNJ, on behalf of BCBSNJ, and CHCM regarding the timeframe for
implementation thereof and the magnitude of, and criteria for invoking,
related financial disincentives to any violation thereof.
(d) Local 54 Process. Beginning on October 1, 1996, and throughout the
Term or until such time as BCBSNJ advises CHCM, on not less than thirty
(30) days' prior written notice, that such services are no longer required,
CHCM shall provide the services incident to the Local 54 Process. Upon
termination of such services, no additional amounts will become payable to
CHCM under Section 4.1(c)(i) hereof.
(e) Specialty Advisory Process. Beginning on November 1, 1996 and
throughout the Term, CHCM shall provide the services incident to the
Specialty Advisory Process, including, without limitation, providing
reasonably detailed quarterly reports to BCBSNJ regarding expenses incurred
and expenditures made by CHCM in connection with the provision of such
services; provided, however, that CHCM shall discontinue its provision of
such services (i) in the event that BCBSNJ advises CHCM, on not less than
six (6) months' prior written notice or about April 30, 1998, that such
services are no longer required and (ii) in any event, unless otherwise
agreed by BCBSNJ and CHCM, on April 30, 1999. Upon termination of such
services, no additional amounts will become payable to CHCM under Section
4.1(c)(ii) hereof.
5.2. Management/Operational Responsibilities. During the Term, CHCM shall
provide the management oversight and supervision of its own operations necessary
to ensure the performance of the Services in accordance with the terms hereof.
Without limiting the generality of the foregoing, CHCM shall:
(a) during the Term, select and appoint and employ and maintain
(including the Designated Employees pursuant to Section 5.5 hereof), in
accordance with the
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terms of Schedule 1.47 hereto and all applicable BCBSNJ Policies, a
sufficient number of:
(i) professional review and case management personnel (including,
without limitation, physician advisors, registered nurses and other
appropriate medical professions) who shall review and manage large
medical cases and provide appropriate authorizations and
certifications in accordance with, and subject to, the terms hereof,
all applicable Law and BCBSNJ Policies; and
(ii) other review and support staff involved in, and as may be
required for, the provision of Services hereunder in accordance with
the terms hereof, which staff shall include, but not be limited to,
(A) legal support, (B) quality assurance personnel and (C) information
systems, communications, and systems and procedures professionals.
All such personnel and staff described in this Section 5.2 shall have the
appropriate qualifications and meet the applicable criteria set forth in
Schedule 5.2(a) attached hereto (including, without limitation, appropriate
credentialing criteria) or such other criteria as may be reasonably
established by BCBSNJ from time to time;
(b) during the Term, ensure that the personnel and staff described in
Section 5.2(a) hereof shall receive adequate initial and ongoing training
and education in accordance with all applicable BCBSNJ Policies (i) in the
systems, procedures and protocols required in connection with the delivery
of Services, (ii) in the subject areas underlying the Services and (iii)
all other matters required for their performance of the Services hereunder
in accordance with the terms hereof;
(c) obtain within twelve (12) months from the Effective Date, and
maintain during the Term, full accreditation and certification by URAC;
(d) during the Term, obtain and maintain any regulatory or other
Licenses that may be required to conduct the business of providing the
Services; and
(e) during the Term, operate and maintain adequate primary and backup
computer and telecommunications systems and facilities as determined by
BCBSNJ.
5.3. Performance Standards and Quality Assurance.
(a) Performance Standards. During the Term, CHCM shall adhere to, and
shall provide the Services hereunder in accordance with and subject to, the
Performance Standards.
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(b) Quality Assurance.
(i) CHCM shall be responsible for the application of all
Performance Standards during the Term and shall ensure that all such
Performance Standards are followed during the course of the day-to-day
performance of the Services hereunder.
(ii) During the Term, CHCM shall, at the direction of BCBSNJ,
conduct or assist BCBSNJ in the conduct of, on a quarterly basis, a
number of quality assurance programs with respect to the provision of
Services hereunder, including, without limitation, reviews of
employees (including, without limitation, physicians and other medical
professionals) and the measurement of whether CHCM is meeting the
Performance Standards. In the event such programs are conducted by
CHCM, it shall promptly report the results of such programs to BCBSNJ
in writing in a form reasonably satisfactory to BCBSNJ. BCBSNJ may
audit the report presented by CHCM (and the books, records and data on
the basis of which the report is prepared, as applicable) through the
use of an independent third-party reasonably acceptable and mutually
agreed by BCBSNJ and CHCM. The results of such audit shall be final
and conclusive. The cost of any such audit shall be shared jointly by
the parties.
(iii) In the event, as a result of an employee review described
in Section 5.3(b)(ii) hereof, BCBSNJ, in its sole and absolute
discretion, informs CHCM that such employee should be reassigned from
the rendering of any Services to be performed under this Agreement,
CHCM hereby agrees that such employee shall be reassigned from the
rendering of such Services.
(iv) CHCM hereby acknowledges that certain of the Performance
Standards shall be measured by means of Customer Surveys.
(v) CHCM shall be responsible for all costs and expenses incurred
in connection with the conduct of any and all Customer Surveys
(including, without limitation, the fees of all Survey Persons).
5.4. Confidentiality of Patient Information. During the Term, subject to,
and in accordance with, all applicable BCBSNJ Policies, CHCM shall:
(a) adopt and implement security and confidentiality procedures that
comply with all applicable Law and BCBSNJ Policies regarding (including,
without limitation, procedures with respect to access to and possession of)
any and all Patient Information; and
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(b) subject to subclause (a) above, preserve the confidentiality of
Patient Information and use such Patient Information only for the limited
purpose necessary to perform the Services in accordance with the terms
hereof.
5.5. Designated Employees. CHCM hereby acknowledges that, in order to
ensure the quality of the Services to be provided hereunder, those persons set
forth on Schedule 5.5 attached hereto are full-time employees of CHCM (all such
persons referred to as "Designated Employees"). CHCM hereby agrees that, during
the Term, if any of the Designated Employees is terminated, with or without
cause, or otherwise leaves the employment of CHCM, BCBSNJ (through a designated
representative) shall have the right to review and approve or disapprove, in its
reasonable discretion, any and all candidates proposed by CHCM to be successors
(immediate and otherwise) to such Designated Employees in accordance with
Section 6.1(a) hereof.
5.6. Information Systems. CHCM shall establish, provide and maintain during
the Term, in a manner satisfactory to BCBSNJ in all material respects
(including, without limitation, with respect to security matters), all necessary
secured telecommunication and MIS interfaces between its information systems and
the information systems of BCBSNJ required for the provision by CHCM of the
Services hereunder in accordance with the terms hereof (including, without
limitation, the utilization review and care management systems). CHCM shall bear
the cost of all such connectivity and interface between its information systems
and the information systems of BCBSNJ (including, without limitation, the
establishment of common linkage records). Notwithstanding any provision of this
Section to the contrary, BCBSNJ shall pay to CHCM's Costs for any such changes
BCBSNJ may require.
5.7. Reports; Retention of Records. CHCM shall create, maintain and retain,
using reporting systems and procedures that are in accordance with the BCBSNJ
Policies or otherwise acceptable to BCBSNJ, records of the activities of CHCM in
connection with the performance of Services hereunder; and CAI and CAHS shall
assume and be solely responsible for all costs incurred in connection with the
creation, installation and implementation of such reporting systems and
procedures. In connection with the creation, maintenance and retention of such
records, CHCM shall provide to BCBSNJ each of the reports described on Schedule
5.7 attached hereto at the applicable interval set forth thereon.
6. Responsibilities of BCBSNJ.
As of the Effective Date, BCBSNJ hereby covenants and agrees for the
benefit of CAI, CHCM and CAHS as follows:
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6.1. General Responsibilities. During the Term, BCBSNJ shall:
(a) through a designated representative, review and approve or
disapprove, in its reasonable discretion, any and all candidates proposed
by CHCM in accordance with Section 5.5 hereof, to be successors (immediate
or otherwise) to the Designated Employees; and
(b) from time to time upon the reasonable request of CHCM, cause its
employees or agents to cooperate with CHCM in connection with the provision
of Services hereunder; provided, however, in no event shall BCBSNJ or any
of its employees or agents assume or satisfy any of the obligations of CHCM
hereunder or otherwise.
6.2. Access to Information. Subject to the satisfaction of the obligations
of CHCM under Section 5.6 hereof to establish, provide and maintain all
necessary telecommunication and MIS interfaces, BCBSNJ shall provide CHCM with
direct, on-line access to the information systems of BCBSNJ (including, without
limitation, the utilization review and care management systems) as such systems
relate to the Serviced Population and are required for the provision of the
Services hereunder in accordance with the terms hereof.
6.3. Provider Agreement. In the event that BCBSNJ proposes to amend any
provision in its provider contracts with inpatient hospitals in a manner that is
reasonably likely to have a material adverse affect on CHCM's ability to provide
Services hereunder or on the financial benefits otherwise available to CHCM
hereunder (including, but not limited to, the amendment of provisions requiring
that providers notify CHCM on behalf of BCBSNJ of an admission, or prohibiting
providers from balance billing patients for days not certified after medical
appropriateness review and appeal), then (i) BCBSNJ shall provide prior written
notice of such proposed amendment to CHCM and (ii) this Agreement shall be
revised as reasonably necessary, prior to the effective date of any such
amendment, to eliminate or fully mitigate such material adverse affect.
6.4 Computations and Determinations. Computations and determinations made
by BCBSNJ pursuant to this Agreement (including, but not limited to allocations
and reserve factors) will be arrived at by a method that is consistent with
generally accepted actuarial principles and/or GAAP, and the methods used
generally by BCBSNJ in making such determinations and computations for other
BCBSNJ business.
6.5 Inspection of Books and Records. CHCM shall have the right, through its
authorized agents, at any reasonable time and at its own expense, to inspect the
books, records and Contracts of BCBSNJ to the extent that they contain
information bearing on CHCM's compensation under this Agreement, and to make and
retain copies thereof and extracts therefrom, subject to the other provisions of
this Agreement.
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7. Representations and Warranties of CAHS and CAI.
Each of CAHS and CAI, jointly and severally, hereby represents and warrants
to BCBSNJ, as of the Effective Date, as follows:
7.1. Organization.
(a) CAHS (i) is a corporation duly organized, validly existing and in
good standing under the Laws of the State of Delaware and (ii) has
delivered to BCBSNJ true and complete copies of its certificate of
incorporation, as amended, certified by the Secretary of State of Delaware,
and its by-laws, as amended, certified by its secretary.
(b) CAI (i) is a corporation duly organized, validly existing and in
good standing under the Laws of the State of Delaware and (ii) has
delivered to BCBSNJ true and complete copies of its certificate of
incorporation, as amended, certified by the Secretary of State of Delaware,
and its by-laws, as amended, certified by its secretary.
7.2. Power and Authority.
(a) It has full power (corporate or otherwise) and authority to
execute, deliver and perform this Agreement in accordance with its terms
and to carry on its business as it is now being conducted.
(b) All action (corporate or otherwise) on its part necessary for the
authorization, execution, delivery and performance of this Agreement and
the consummation of the transactions contemplated hereby has been taken and
no further action or authorization (corporate or otherwise) on its part is
required to consummate the transactions provided for in this Agreement.
This Agreement constitutes its valid and legally binding obligation
enforceable in accordance with its terms, except as may be limited by
bankruptcy, moratorium, reorganization, insolvency and other similar Laws
of general application relating to or affecting the rights of creditors,
and by general principles of equity. The execution, delivery or performance
of this Agreement by it shall not: (i) violate, conflict with, or result in
a breach of, any provisions of its organizational or governing documents,
(ii) conflict with, constitute a default or result in a breach of, or give
rise to a right of or result in a termination of, or accelerate the
performance required by the terms of, any mortgage, deed of trust, lien,
lease, restriction or other Contract to which it or any of its assets are
bound or by which it or any of its assets are affected, (iii) violate or
conflict with the terms of any order, judgment, writ, or decree of any
Governmental Authority or (iv) result
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in the creation or imposition of a lien or give any other Person any right,
title or interest in its assets or business.
(c) The execution and delivery of this Agreement and the consummation
of the transactions contemplated by this Agreement shall not require the
consent, approval or authorization of any Governmental Authority or any
other Person under any License, agreement, indenture or other instrument or
Contract to which it is a party or to which any of its property is subject,
and no declaration, filing or registration with any Governmental Authority
is required by it in connection with such transactions.
7.3. Power and Authority of CHCM.
(a) All action (corporate or otherwise) on the part of CHCM necessary
for the authorization, execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby has
been taken and no further action or authorization (corporate or otherwise)
on the part of CHCM is required to consummate the transactions provided for
in this Agreement. This Agreement constitutes CHCM's valid and legally
binding obligation enforceable against CHCM in accordance with its terms,
except as may be limited by bankruptcy, moratorium, reorganization,
insolvency and other similar Laws of general application relating to or
affecting the rights of creditors, and by general principles of equity.
(b) The execution and delivery of this Agreement by CHCM and the
consummation of the transactions contemplated by this Agreement shall not
require the consent, approval or authorization of any Governmental
Authority or any other Person to which any of its property is subject, and
no declaration, filing or registration with any Governmental Authority is
required by it in connection with such transactions.
7.4. Litigation. Except as set forth on Schedule 7.4, there is no suit,
action, claim, proceeding, governmental investigation or governmental inquiry
pending or threatened against, or affecting, it or, to the best of its
knowledge, any of its directors, partners or officers, or relating to its assets
or business that, if adversely determined, could have a material adverse effect
upon any or all of CAHS or CAI, their respective assets, this Agreement or the
transactions contemplated hereby, and there is no legal, administrative or
arbitration proceeding pending, threatened against, or relating to it or, to the
best of its knowledge, any of its directors, partners or officers, or to which
it or any of its directors, partners or officers, might become party that, if
adversely determined, could have a material adverse effect upon any or all of
CAHS or CAI, their respective assets, this Agreement or the transactions
contemplated hereby; and there is no judgment, order or decree affecting it, or,
to the best of its knowledge, any of its directors, partners or officers, or its
assets that
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remains unsatisfied or that continues in effect beyond the date hereof. Except
as set forth on Schedule 7.4, it has no knowledge of any facts that might form
the basis for any such suit, action, claim, proceeding, investigation or inquiry
in which the opposing party could be expected to prevail, and there is no
outstanding order, writ, injunction or decree of any Governmental Authority
against or affecting it or, to the best of its knowledge, any of its directors,
partners or officers, its business, this Agreement or the transactions
contemplated hereby.
7.5. Licenses. It owns, holds or otherwise possesses, or lawfully uses, all
Licenses that are in any manner necessary for it to consummate the transactions
contemplated hereby and to perform its obligations as well as the obligations of
CHCM hereunder, including, without limitation, the provision of Services upon
the terms and conditions set forth in this Agreement. Schedule 7.5 attached
hereto contains a true and complete list of such Licenses. No proceeding is
pending or, to its knowledge, threatened or seeking the revocation or limitation
of any License and it has no knowledge of any facts that might form the basis
for such a proceeding in which the opposing party could be expected to prevail
or any reason why any License may terminate because of, or may not be included
as part of, the transactions contemplated hereby or why they may not be valid
indefinitely or renewable in accordance with applicable Law.
7.6. Compliance with Laws, etc. Its business and operations have been
conducted, and are in compliance in all material respects with all applicable
Law, including, without limitation, those pertaining to antitrust, pricing and
trade practices, equal opportunity, employment, discrimination, securities
issuance and regulation, and occupational health and safety; and, to its
knowledge, there are no pending notices, allegations or threatened claims of its
violation of any such Laws.
7.7. Disclosure.
(a) The information furnished by it or on its behalf to BCBSNJ or its
representatives in connection with this Agreement and the transactions
contemplated hereby does not contain and shall not contain any untrue
statement of material fact and does not omit and shall not omit to state
any material fact required to be stated therein or necessary to make the
statements made, in light of the circumstances under which they were made,
not misleading.
(b) None of its representations or warranties contained in this
Agreement, in any schedule or exhibit hereto or in any agreement,
instrument or certificate furnished to BCBSNJ pursuant to this Agreement,
contains or shall contain any untrue statement of a material fact or omits
or shall omit to state any material fact required to be stated therein or
necessary to make the statements herein or therein, in light of the
circumstances under which they were made, not misleading.
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7.8. UR/UM Materials. CHCM is, and shall remain for the Term, a licensee or
sublicensee, as applicable, of the UR/UM Materials; and CHCM has, and shall
obtain and maintain for the Term, title to or the right to license or
sublicense, as applicable, the UR/UM Materials.
7.9. Survival of Representations and Warranties. The representations,
warranties and covenants of each of CAHS and CAI contained in this Section 7
shall expressly survive the date hereof.
8. Representations and Warranties of BCBSNJ.
BCBSNJ hereby represents and warrants to each of CAHS and CAI, as of the
Effective Date, as follows:
8.1. Organization. BCBSNJ (i) is a health service corporation duly
organized, validly existing and in good standing under the Laws of the State of
New Jersey and (ii) has delivered to CAI and CAHS true and complete copies of
its certificate of incorporation, as amended, certified by the Secretary of
State of New Jersey, and its by-laws, as amended, certified by its secretary.
8.2. Power and Authority of BCBSNJ.
(a) BCBSNJ has full power (corporate or otherwise) and authority to
execute, deliver and perform this Agreement in accordance with its terms
and to carry on its business as it is now being conducted.
(b) All action (corporate or otherwise) on the part of BCBSNJ
necessary for the authorization, execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated hereby
has been taken and no further action or authorization (corporate or
otherwise) on its part is required to consummate the transactions provided
for in this Agreement. This Agreement constitutes its valid and legally
binding obligation enforceable in accordance with its terms, except as may
be limited by bankruptcy, moratorium, reorganization, insolvency and other
similar Laws of general application relating to or affecting the rights of
creditors, and by general principles of equity. The execution, delivery or
performance of this Agreement by BCBSNJ shall not: (i) violate, conflict
with, or result in a breach of, any provisions of its organizational or
governing documents, (ii) conflict with, constitute a default or result in
a breach of, or give rise to a right of or result in a termination of, or
accelerate the performance required by the terms of, any mortgage, deed of
trust, lien, lease, restriction or other Contract to which it or any of its
assets are bound or by which it or any of its assets are affected, (iii)
violate or conflict with the terms of any order, judgment, writ, or decree
of any Governmental Authority or
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(iv) result in the creation or imposition of a lien or give any other
Person any right, title or interest in its assets or business.
(c) The execution and delivery of this Agreement and the consummation
of the transactions contemplated by this Agreement shall not require the
consent, approval or authorization of any Governmental Authority or any
other Person under any License, agreement, indenture or other instrument or
Contract to which BCBSNJ is a party or to which any of its property is
subject, and no declaration, filing or registration with any Governmental
Authority is required by it in connection with such transactions.
8.3. Disclosure.
(a) The information furnished by it or on its behalf to CAHS or CAI or
their respective representatives in connection with this Agreement and the
transactions contemplated hereby does not contain and shall not contain any
untrue statement of material fact and does not omit and shall not omit to
state any material fact required to be stated therein or necessary to make
the statements made, in light of the circumstances under which they were
made, not misleading.
(b) None of its representations or warranties contained in this
Agreement, in any schedule or exhibit hereto or in any agreement,
instrument or certificate furnished to CAHS or CAI pursuant to this
Agreement, contains or shall contain any untrue statement of a material
fact or omits or shall omit to state any material fact required to be
stated therein or necessary to make the statements herein or therein, in
light of the circumstances under which they were made, not misleading.
8.4. Survival of Representations and Warranties. The representations and
warranties of BCBSNJ contained in this Section 8 shall expressly survive the
date hereof.
9. Guaranty.
9.1. Enforcement of Guaranteed Obligations. Each of CAHS and CAI, jointly
and severally, hereby (a) irrevocably and unconditionally guarantees to BCBSNJ
the timely and satisfactory performance of the obligations of CHCM hereunder
(including, without limitation, the indemnity obligations under Section 14
hereof, the "Guaranteed Obligations") and (b) acknowledges and agrees that (i)
such guaranty of performance is the primary obligation of each of CAHS and CAI
and (ii) BCBSNJ may enforce such guaranty against any or all of CAHS and CAI
without any prior attempted enforcement of the Guaranteed Obligations against
CHCM.
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9.2. No Impairment or Discharge. Each of CAHS and CAI hereby acknowledges
and agrees that its liability to BCBSNJ under this Section 9 shall not be
impaired or discharged by reason of (a) any time or other indulgence granted by
BCBSNJ to CHCM or any guarantor thereof, (b) any arrangement, reorganization,
insolvency or bankruptcy Law modifying the rights and remedies of BCBSNJ with
regard to the Guaranteed Obligations, this Agreement or any of the transactions
contemplated hereby, (c) enforcement or failure of enforcement by BCBSNJ of its
rights hereunder with respect to the Guaranteed Obligations or (d) any change in
the terms of this Agreement (by formal amendment of this Agreement pursuant to
Section 15.6 hereof or otherwise). Neither partial enforcement against, nor
partial satisfaction by, CHCM of the Guaranteed Obligations shall waive or limit
in any manner whatsoever the guaranty obligations of CAHS or CAI under this
Section 9. Enforcement of the guaranty under this Section 9 is in addition to,
and not in lieu of, any other rights and remedies available to BCBSNJ under this
Agreement or at law or in equity (or otherwise).
9.3. Waiver. Each of CAHS and CAI hereby waives all defenses or conditions
precedent to enforcement of its guaranty under this Section 9.
9.4. Survival. The terms and conditions of this Section 9 shall expressly
survive any termination of this Agreement and shall continue in full force and
effect thereafter.
10. Termination of Agreement.
10.1. Termination without Cause. BCBSNJ shall have the right, in its sole
and absolute discretion, to terminate this Agreement without cause at any time:
(a) upon ninety (90) days' prior written notice to CHCM, CAHS and CAI
(such date ninety (90) days from delivery of such notice, the "Without
Cause Termination Date"); and
(b) in the event that the Without Cause Termination Date occurs prior
to June 30, 2000, BCBSNJ shall pay to CHCM liquidated damages promptly upon
the calculation of such in accordance with this Section 10.1 (but in no
event prior to the Without Cause Termination Date) in an amount (the
"Termination Payment") equal to the sum of:
(i) that amount equal to forty percent (40%) of the fair market
value of CAI as of the Without Cause Termination Date, after giving
effect to the termination of this Agreement and any payments to be
made pursuant to this Section 10.1(b)(i); plus
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(ii) the present value as of the Without Cause Termination Date
of the future valuation of this Agreement over the remainder of the
Term of this Agreement from (and not including) the Without Cause
Termination Date; plus
(iii) the present value as of the Without Cause Termination Date
of the future valuation of any third-party contract that CAI can
establish, as fully and finally determined by a court of competent
jurisdiction (and following the expiration of any appeals therefrom),
was lost solely as a direct result of BCBSNJ's termination of this
Agreement under this Section 10.1.
(c) Each of BCBSNJ and CAI hereby agrees that the fair market value of
CAI after giving effect to the termination of this Agreement, the present
value of this Agreement and the present value of any third-party contracts,
each with respect to calculating the Termination Payment in accordance with
subclause (b)(i) above shall be determined by an independent valuation
expert mutually acceptable to BCBSNJ and CAI and using a valuation
methodology acceptable to BCBSNJ and CAI, which determination shall be
final and binding upon the parties hereto and the cost of which expert
shall be borne equally by BCBSNJ and CAI. In the event that sixty (60) days
prior to the Without Cause Termination Date BCBSNJ and CAI cannot mutually
agree upon a valuation expert, each such party shall promptly select and
retain at their own expense a valuation expert and notify the other party
of the identity of the expert so selected and the two (2) selected experts
shall appoint a third, the cost of which third expert shall be borne
equally by BCBSNJ and CAI. The mean of the valuation of each of the three
(3) experts for each of the fair market value of CAI after giving effect to
the termination of this Agreement, the present value of this Agreement and
the present value of the third-party contracts shall be final and binding
upon the parties hereto and shall be the valuation used for purposes of
calculating the Termination Payment in accordance with clause (b) above.
10.2. Termination for Cause.
(a) BCBSNJ. BCBSNJ may, at any time, in its reasonable discretion,
terminate this Agreement upon the expiration of any applicable cure
periods, effective by delivering written notice to CHCM, CAHS and CAI upon
the occurrence or existence of any one or more of the following events or
conditions (each and any such event or condition that precipitates a
termination of this Agreement in accordance with the terms of this Section
10.2(a), a "For Cause Event of Termination"):
(i) Representations and Warranties. Any representation or
warranty made by CAHS or CAI hereunder shall prove to have been false
or
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misleading in any material respect as of the time made (including by
omission of material information necessary to make such representation
or warranty not misleading).
(ii) Covenant Performance. CHCM shall commit any breach, failure
or violation of any material covenant, agreement, undertaking or duty
hereunder, where such breach, failure or violation continues for
thirty (30) days after receipt by CHCM of written notice specifying
such breach, failure or violation in reasonable detail, or, a
repetition of such breach, failure or violation (or the occurrence of
a substantially similar breach, failure or violation) that had
previously been cured. Without limiting the generality of the
foregoing, the parties hereto hereby acknowledge and agree that for
purposes of this Section 10.2(a)(ii) either of the following shall be
deemed a breach of a material covenant of this Agreement: (A) any
failure to provide and/or perform the Services in accordance with
and/or subject to the Performance Standards or any other material
deviation from the Performance Standards in connection with the
performance of the Services hereunder or (B) Customer Dissatisfaction.
(iii) Bankruptcy. CAI shall dissolve or be liquidated, or CAHS,
CAI, or CHCM shall (A) make an assignment for the benefit of
creditors, (B) petition or apply to any tribunal for, or otherwise
seek, consent to, or acquiesce in, the appointment of a custodian,
receiver or trustee for it or a substantial part of its assets, (C)
commence, consent to, or acquiesce in, any proceeding under any
bankruptcy, reorganization, arrangement, dissolution or liquidation
Law of any jurisdiction, whether now or hereafter in effect, or (D)
have had any such petition or application filed, or any such
proceeding shall have been commenced, against it, in which an
adjudication or appointment is made or order for relief is entered and
which remains undismissed or unstayed for a period of thirty (30) days
or more. Moreover, (i) any of CAHS, CAI and CHCM (x) has become
insolvent, or (y) is generally not paying, or is unable to, or shall
admit in writing its inability to, pay its debts as such debts become
due, (ii) such party has received a written demand from BCBSNJ seeking
further assurance that such party will be able to perform its
obligations under this Agreement without impairment, and (iii) such
party has not responded to BCBSNJ within five (5) days of such demand
with adequate evidence, as determined in BCBSNJ's sole and reasonable
discretion, of such further assurance.
(iv) Moral Turpitude. CHCM, CAI or CAHS, or any of their
respective officers, directors or partners, or any holder of five
percent (5%) or more of any class of Equity Securities of either CHCM,
CAHS or CAI,
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shall commit an act of Moral Turpitude that materially adversely
affects, or that could reasonably be expected to materially adversely
affect, BCBSNJ, its business or reputation.
(v) Transactional Documents. CHCM, CAHS or CAI shall commit any
material breach, failure or violation, subject to the lapse of any
applicable cure period without cure thereof, of any condition,
undertaking, representation, warranty or covenant made for the benefit
of BCBSNJ and/or Enterprise Holding Company, Inc. in (A) the note
referred to in Section 4.3 of this Agreement, following thirty (30)
days' prior written notice from BCBSNJ, provided that such breach,
failure or violation has not been cured prior to the expiration of
such 30-day notice period, or (B) any of the Transactional Documents
(as such term is defined in the Acquisition Agreement).
(vi) Brennan Acquisition. Any of Robert E. Brennan ("Brennan")
and/or any nominee of Brennan and/or any Person controlled by Brennan
acquires, holds, controls or is issued, directly or indirectly,
separately or jointly, five percent (5%) or more of any class of
Equity Securities of either CHCM, CAHS or CAI.
(b) CHCM. CHCM may, at any time, in its discretion, terminate this
Agreement effective immediately by delivering written notice to BCBSNJ upon
the occurrence or existence of any one or more of the following events or
conditions (whatever the reason for such event and whether voluntary,
involuntary, or effected by operation of law):
(i) Representations and Warranties. Any representation or
warranty made by BCBSNJ hereunder shall prove to have been false or
misleading in any material respect as of the time made (including by
omission of material information necessary to make such representation
or warranty not misleading).
(ii) Payment of Compensation. BCBSNJ shall fail to make any
payment of any amount when due as compensation to CHCM hereunder and
such failure continues for five (5) business days after receipt by
BCBSNJ from CHCM of written notice specifying such failure in
reasonable detail.
(iii) Covenant Performance. BCBSNJ shall commit any breach,
failure or violation of any material covenant, agreement, undertaking
or duty of BCBSNJ hereunder (except for any breach, failure or
violation pertaining to any of its payment obligations hereunder),
where such breach, failure or
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violation continues for thirty (30) days after receipt by BCBSNJ from
CHCM of written notice specifying such breach, failure or violation in
reasonable detail.
(iv) Bankruptcy. BCBSNJ shall (A) become insolvent, (B) dissolve
or be liquidated (except in connection with a liquidation required by
applicable Law resulting from a voluntary corporate reorganization),
(C) generally not, or be unable to, or shall admit in writing its
inability to, pay its debts as such debts become due, (D) make an
assignment for the benefit of creditors, (E) petition or apply to any
tribunal for, or otherwise seek, consent to, or acquiesce in, the
appointment of a custodian, receiver or trustee for it or a
substantial part of its assets, (F) commence, consent to, or acquiesce
in, any proceeding under any bankruptcy, reorganization, arrangement,
dissolution or liquidation Law of any jurisdiction, whether now or
hereafter in effect (except in connection with a liquidation required
by applicable Law resulting from a voluntary corporate
reorganization), or (G) have had any such petition or application
filed, or any such proceeding shall have been commenced, against it,
in which an adjudication or appointment is made or order for relief is
entered and which remains undismissed or unstayed for a period of
thirty (30) days or more.
10.3. Effect of Termination.
(a) Post-Termination Activities. Upon termination of this Agreement
pursuant to Section 10.2(a) hereof, each of CAI, CAHS and CHCM agrees,
jointly and severally, as follows:
(i) For a period of ten (10) years from the date of termination
of this Agreement, each of CAI, CAHS and CHCM agrees to license and
assign to BCBSNJ for use in its business (x) any methods, processes,
manuals, trade secrets or other proprietary information used by CAI,
CAHS or CHCM in rendering the Services hereunder, and (y) any and all
improvements, enhancements, modifications, updates and corrections
with respect thereto, all pursuant to the terms and conditions of a
license agreement (the "Post Termination License Agreement"), the
final form of which is attached hereto as Exhibit 10.3(a). Each of
CAI, CAHS and CHCM agrees to execute and deliver the Post-Termination
License Agreement upon termination of this Agreement. Each of CAI,
CAHS and CHCM hereby authorizes BCBSNJ and does hereby make,
constitute and appoint BCBSNJ, and any officer or agent of BCBSNJ,
with full power of substitution, as such party's true and lawful
attorney-in-fact, with power, in its own name or in the name of CAI,
CAHS and CHCM, respectively, to execute the Post-Termination License
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Agreement and any other documents necessary to effect the terms of
this Section 10.3(a). Pursuant to this Section 10.3(a), BCBSNJ hereby
covenants and agrees that, in connection with its use of the Power of
Attorney granted to it by each of CAI, CAHS and CHCM hereunder, it
will not interfere with the conduct of either CAI's, CAHS' or CHCM's
business as it is then conducted except to the extent necessary to
give effect to the Post-Termination License Agreement.
(ii) Each of CAI, CAHS and CHCM agrees to sublease to BCBSNJ (x)
for a period of one (1) year subsequent from the date of termination
of this Agreement, a sufficient amount of leased space at CAI's
offices located at 485-C Route 1 South, Iselin, New Jersey, or any
subsequent offices which CAI may occupy from time to time, and (y)
subleases for such office equipment and furnishings, including,
without limitation, the Term Master Lease Agreement dated April 6,
1995 between CAI and IBM Credit Corporation, as may be necessary to
enable BCBSNJ independently to render the Services. Each of CAI, CAHS
and CHCM agrees that any lease of office space, equipment or
furnishings made to BCBSNJ pursuant to this Section 10.3(a)(ii) shall
be based upon the cost of such leases to CAI, CAHS or CHCM,
respectively. Any rent due hereunder shall constitute CHCM's Costs.
(iii) Each of CAI, CAHS and CHCM agrees to cooperate and not
interfere with BCBSNJ in having those personnel then currently
employed by CAI, CAHS and CHCM, including, without limitation, the
Designated Employees (other than Dean Kallin or any person who
succeeds to his position and the CAI Director-MIS), hired and employed
by BCBSNJ, as BCBSNJ may designate in its sole and reasonable
discretion, in order to enable BCBSNJ independently to render the
Services. In the event that any of such personnel designated by BCBSNJ
do not accept employment by BCBSNJ and remain in the employ of either
CAI, CAHS and CHCM, each of CAI, CAHS and CHCM agrees to make the
services of such personnel as well as Dean Kallin or any person who
succeeds to his position and the CAI Director-MIS available to BCBSNJ
for a period of one (1) year from the date of termination of this
Agreement in order to enable BCBSNJ independently to render the
Services. The costs of making such personnel available shall
constitute CHCM's Costs.
(iv) Each of CAI, CAHS and CHCM agrees to use its best efforts to
enable BCBSNJ to enter into agreements with those vendors of CAI, CAHS
and CHCM whom BCBSNJ desires to contract with, to the extent that said
employees or vendors have participated in the provision of the
Services to BCBSNJ.
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(v) Each of CAI, CAHS and CHCM agrees to license or sublicense to
BCBSNJ, on a cost basis, or use its best efforts to arrange for the
license to BCBSNJ, at a cost no greater than that paid by CAI, CAHS or
CHCM in its provision of the Services, all software not owned by CAI,
CAHS or CHCM and used by such parties with respect to their provision
of utilization review and utilization management services (including,
without limitation, the Services).
(vi) Each of CAI, CAHS and CHCM agree to take any other actions
required hereby or otherwise reasonably necessary to wind-up the
relationship among the parties.
(b) Survival of Rights. Notwithstanding the foregoing provisions of
this Section 10, including, without limitation Section 10.3(a) hereof,
expiration or earlier termination of this Agreement shall not (i) act to
diminish, waive or terminate any rights or remedies of a party hereto
arising out of or relating to any breach, failure or violation of this
Agreement (including, without limitation, the rights relating to any
breach, failure or violation of the obligations described in Sections 10.5,
11.1, 11.2, 11.3 and 12 hereof or giving rise to such termination) and such
rights shall expressly survive such termination and (ii) relieve, release
or discharge a party hereto from any obligation, debt or liability that may
previously have accrued and remains to be performed upon the effective date
of termination (including, without limitation, the guarantee obligations of
CAHS and CAI under Section 9 hereof). Except for (A) the obligations, debts
and liabilities contemplated by the immediately prior sentence and (B) any
obligations, debts or liabilities that by their terms expressly survive
(including, without limitation, obligations, debts and liabilities arising
under Sections 9 and 14 hereof), upon expiration or earlier termination of
this Agreement, no party hereto shall have or owe any further obligation,
debt or liability to the other.
(c) Confidential Information. In the event of the expiration or
earlier termination of this Agreement, each of the parties hereto shall as
promptly as practicable, deliver to the appropriate party, but in no event
later than ten (10) days following such expiration or termination, and
without retaining copies thereof, all Confidential Information and all
documents, work papers and other materials obtained from such other party
relating to such party and/or the transactions contemplated hereby, whether
so obtained before or after the execution hereof. The parties hereto hereby
acknowledge and agree that the Patient Information, the Confidential
Information of BCBSNJ and any and all information or data created or
generated in connection with the provision of Services hereunder is the
exclusive property of BCBSNJ.
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10.4. Equitable Remedies. The parties hereto hereby acknowledge and agree
that the occurrence or existence of an event or condition under Sections 10.2,
10.3 and 10.5 hereof that permits the non-breaching party to terminate this
Agreement thereunder may cause such non-breaching party irreparable harm and
injury and, accordingly, in anticipation of, or following the commission or
discovery of any such event, the non-breaching party, in addition to,
independent of, and severally enforceable from, any and all other rights and
remedies available to the non-breaching party pursuant to this Agreement, at law
or in equity (or otherwise), shall, notwithstanding any other provision hereof,
be entitled, in its sole and absolute discretion, to seek and obtain, equitable
relief, including, without limitation, injunctive relief and specific
performance, in any court of competent jurisdiction.
10.5. Non-Solicitation. During the Term and for a period of two (2) years
thereafter, other than those individuals solicited in accordance with Section
10.3(a)(iii) hereof, none of the parties hereto shall, directly or indirectly,
without the prior written consent of the applicable party, hire, solicit or
entice away, or attempt to hire, solicit or entice away from such party, any
director, partner, officer, employee, consultant, independent contractor (other
than Persons rendering legal, accounting or financial services) or agent
thereof.
11. Restrictive and Other Covenants.
11.1. Provision of Services of CHCM, CAHS and CAI. For good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged by
the parties hereto, during the Term, none of CAI, CAHS and CHCM, nor, on behalf
of CAI, CAHS and CHCM, any of their respective Affiliates, directors, officers,
employees or agents of either CHCM, CAHS or CAI, shall, directly or indirectly,
whether personally or as owner, director, control person, shareholder, partner,
member, manager, operator, joint venturer, agent, consultant or otherwise, enter
into or engage in any discussion, agreement or other binding obligations with
any third party relating to the provision of services substantially similar to
the Services within the State of New Jersey, without the prior written consent
of BCBSNJ, which consent shall not be unreasonably withheld.
11.2. BCBSNJ's Contracts with Third Parties. For good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged by
the parties hereto, during the Term, none of BCBSNJ, nor, on behalf of BCBSNJ,
any of its Affiliates, directors, officers, employees, or agents, shall,
directly or indirectly, whether personally or as owner, director, control
person, shareholder, partner, member, manager, operator, joint venturer, agent,
consultant or otherwise, enter into or engage in any discussion, agreement or
other binding obligations with any third party relating to the provision of
services to BCBSNJ substantially similar to the Services.
11.3 Noncompetition. For good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the parties hereto, during the
Term, none
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of CAHS, CAI or CHCM nor, on behalf of CAI, CAHS and CHCM, any of their
respective Affiliates, directors, officers, partners, employees or agents of
either CHCM, CAHS or CAI, shall, directly or indirectly, whether personally or
as owner, director, control person, shareholder, partner, member, manager,
operator, joint venturer, agent, consultant or otherwise, engage in any
business, venture or enterprise in competition with any of the principal
businesses carried on by BCBSNJ or any of its Affiliates.
11.4. New Market Segments, Performance Standards and Services. The parties
hereto hereby acknowledge and agree that BCBSNJ, during the Term, from time to
time during the Term in its sole and absolute discretion, shall give notice to
CHCM and CAHS that (a) Services are to be provided hereunder to a market segment
(fully-insured or otherwise) that does not appear on Schedule 1.40 hereto or to
a new category of BCBSNJ customers requiring utilization review or utilization
management services that does not itself constitute a market segment hereunder,
and thereafter Services shall be provided thereto in accordance with the terms
hereof, (b) additional or revised performance standards and measures have been
agreed to by BCBSNJ and one or more of its customers, and from the date of such
notice all references to "Performance Standards" herein with respect to the
provision of Services hereunder to such customer(s) shall be deemed to include
such additional or revised standards and measures, provided, however, that the
cost of any changes due to such additional or revised performance standards and
measures (other than those changes made at the request or recommendation of
either CAI, CAHS or CHCM which are not likely, in BCBSNJ's reasonable judgment,
to enhance the benefits to BCBSNJ and its customers expected to be generated by
operation of this Agreement) shall be borne solely by BCBSNJ, (c) additional or
revised performance standards and measures not unreasonable in light of
statewide or regional industry practice have been adopted by BCBSNJ, and from
the date of such notice all references to "Performance Standards" herein shall
be deemed to include such additional or revised standards and measures, and (d)
BCBSNJ requests that services similar or ancillary to any of the Services
specified by BCBSNJ in such notice be provided as Services hereunder, which
described services shall be included hereunder as mutual agreed by BCBSNJ and
CHCM.
11.5. MEDecision License. For good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged by the parties hereto, during
the Term, each of CAI, CAHS and CHCM agrees that, with respect to the one
hundred (100) user license (the "MEDecision License") granted to CAHS by
MEDecision, Inc. under an Agreement for Products & Services dated November 7,
1994, as amended to date, each of such parties shall not permit any users to
utilize the MEDecision License, other than users engaged in the provision of
Services to BCBSNJ, unless in BCBSNJ's sole and absolute judgment, there are a
sufficient number of users designated by BCBSNJ to permit the adequate provision
of the Services to BCBSNJ.
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11.6. Further Assurances. Each party hereto hereby agrees to perform any
further acts and execute and deliver any documents that may be reasonably
necessary to carry out the provisions and purposes of this Agreement.
12. Confidentiality; Marks.
12.1. Confidentiality. Each party hereto hereby agrees that, during the
Term and after the termination of this Agreement, it shall (a) not, directly or
indirectly, use (other than for the purposes contemplated hereby during the
Term), (b) keep secret and retain in strictest confidence, and (c) not disclose
to any third party, Confidential Information. Notwithstanding the foregoing, a
party may disclose Confidential Information: (i) when compelled to do so by
applicable Law, a court of competent jurisdiction or a Governmental Authority
and (ii) to those of such party's officers, directors, partners, employees and
agents who have a "need to know".
12.2. Marks. During the Term and after the termination of this Agreement,
each of CHCM, CAI and CAHS shall use its best efforts to protect the Marks. Each
of CHCM, CAI and CAHS hereby acknowledges and agrees that it does not now own,
nor, by virtue of the Services rendered hereunder shall it acquire, any right,
title or interest with respect to the Marks, and that all such right, title and
interest is owned by BCBSNJ and its Affiliates. Each of CHCM, CAI and/or CAHS
shall promptly notify BCBSNJ in writing of any unauthorized uses, infringements
or violations of the Marks of which it becomes aware. Each of CHCM, CAI and CAHS
further acknowledges and agrees that BCBSNJ and its Affiliates have substantial
goodwill in and with respect to the Marks, that nothing in this Agreement or
with respect to the transactions contemplated hereby is intended to diminish or
otherwise adversely affect such goodwill and that none of CHCM, CAI or CAHS
shall acquire any right, title and interest in or to such goodwill by virtue of
this Agreement or the transactions contemplated hereby. None of CHCM, CAI or
CAHS shall use the Marks, including, without limitation, with respect to any of
its advertising or public disclosures, without the prior written consent of
BCBSNJ and its Affiliates, which consent BCBSNJ and its Affiliates may grant or
deny in their sole and absolute discretion, provided, however, that, in the
event that BCBSNJ shall not have given a response or reply to any written
requests for approval specifically referencing this Section 12.2 for the use of
its Marks by either CHCM, CAI or CAHS within ten (10) days of BCBSNJ's receipt
of such request for approval, such approval shall be deemed to have been given
by BCBSNJ to either CHCM, CAI or CAHS, as applicable, for the use of such Marks,
provided, further, however, that nothing in this Section 12.2 shall prohibit any
use of the Marks in connection with any public disclosure required by law
provided that CAI, CAHS and CHCM, as the case may be, furnishes advance written
notice of such use to BCBSNJ to the greatest extent practicable.
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13. Equitable Remedies.
13.1. Rights and Remedies. If any party breaches or threatens to commit a
breach of any of the provisions of Section 10.5, 11.1, 11.2, 11.3 or 12 hereof
(the "Restrictive Covenants"), the affected non-breaching party shall have the
following rights and remedies, each of which rights and remedies shall be
independent of the others and severally enforceable, and each of which is in
addition to, and not in lieu of, any other rights and remedies available to the
affected non-breaching at law or in equity (or otherwise):
(a) the right and remedy to have the breaching party enjoined (whether
by temporary restraining order, temporary injunction or permanent
injunction) by any court of competent jurisdiction from breaching or
continuing to breach any of the Restrictive Covenants, it being agreed that
any breach or threatened breach of the Restrictive Covenants would cause
irreparable injury to the affected non-breaching party and that money
damages would not provide an adequate remedy to the affected non-breaching
party;
(b) the right and remedy to have the Restrictive Covenants
specifically enforced by any court of competent jurisdiction, it being
agreed that any breach or threatened breach of the Restrictive Covenants
would cause irreparable injury to the affected non-breaching party and that
money damages would not provide an adequate remedy to the affected
non-breaching party; and
(c) the right and remedy to require the breaching party to account for
and pay over to the affected non-breaching party all compensation, profits,
monies, accruals, increments or other benefits derived or received by the
breaching party as the result of any transactions constituting a breach of
the Restrictive Covenants.
13.2. Geographical and Temporal Scope; Enforceability. The parties hereto
hereby acknowledge and agree that the Restrictive Covenants are reasonable and
valid in geographical and temporal scope and in all other respects. If any court
determines that any of the Restrictive Covenants, or any part thereof, is
unenforceable because of the geographic or durational scope of such provisions,
such court shall have the power to reduce the duration or scope of such
provision, as the case may be, and in its reduced form, such provision shall
then be enforceable. If any court determines that any of the Restrictive
Covenants, or any part thereof, is invalid or unenforceable, the remainder of
the Restrictive Covenants shall be given full effect, without regard to the
invalid portions.
13.3. Jurisdiction; Severability. Notwithstanding any other provision
hereof, the parties hereto each intend to and hereby confer jurisdiction to
enforce the Restrictive Covenants upon the courts of any jurisdiction within the
geographical scope of such Restrictive Covenants. If the courts of any one or
more of such jurisdictions hold the
38
<PAGE>
Restrictive Covenants unenforceable by reason of the breadth of such scope or
otherwise, it is the intention of the parties that such determination not bar or
in any way affect the affected non-breaching party's right to the relief
provided in this Section 13 in the courts of any other jurisdiction within the
geographical scope of such Restrictive Covenants, as to breaches of such
Restrictive Covenants in such other respective jurisdictions, such Restrictive
Covenants as they relate to each jurisdiction being, for this purpose, severable
into diverse and independent covenants.
13.4. Tolling. During any period of a breach by a party of the Restrictive
Covenants, the relevant restricted periods shall be tolled until such breach is
cured or otherwise terminated, and the period of such breach shall be added to
each restricted period.
14. Indemnity; Insurance.
14.1. Indemnity.
(a) CAI, CAHS and CHCM. Each of CAI, CAHS and CHCM shall indemnify,
defend and hold harmless BCBSNJ, its Affiliates and the respective
directors, partners, officers, employees and agents of BCBSNJ and its
Affiliates, from and against any and all claims, actions, losses (whether
joint or several), liabilities, damages, costs and expenses (including,
without limitation, attorneys' fees and expenses) (collectively "Damages")
arising out of or relating to: (a) any breach, failure or violation by it
of any of its respective representations, warranties, covenants and
undertakings set forth in this Agreement, and (b) any of its acts or
omissions, or an act or omission of its respective partners, officers,
employees, agents or subcontractors, outside of the scope of its respective
obligations hereunder.
(b) BCBSNJ. BCBSNJ shall indemnify, defend and hold harmless CAI, CAHS
and CHCM, their respective Affiliates and the respective directors,
partners, officers, employees and agents of CAI, CAHS and CHCM and their
respective Affiliates, from and against any and all Damages arising out of
or relating to: (a) any breach, failure or violation by it of any of its
respective representations, warranties, covenants and undertakings set
forth in this Agreement, and (b) any of its acts or omissions, or an act or
omission of its respective partners, officers, employees, agents or
subcontractors, outside of the scope of its respective obligations
hereunder.
14.2. Notice; Defense. Each party hereto entitled to indemnification under
this Section 14 (each, an "Indemnified Party") hereby agrees to give the
applicable party or parties obligated to indemnify it under this Section 14
(each, an "Indemnifying Party") written notice of any event or assertion of
which the Indemnified Party obtains knowledge concerning any Damage and as to
which the Indemnified Party may request indemnification hereunder. The
Indemnified Party shall cooperate with the Indemnifying Party in
39
<PAGE>
determining the validity of any claim or assertion requiring indemnity hereunder
and in defending against third parties with respect to the same. The defense of
such litigation shall be within the control of the Indemnifying Party, or, as
the case may be, any Persons providing indemnity and defense to such
Indemnifying Party; provided, however, that an Indemnifying Party's choice of
counsel shall be reasonably satisfactory to the Indemnified Party. The
Indemnified Party may participate in the defense of any claim or assertion
requiring indemnity hereunder, and in such event, shall cooperate fully in
connection therewith. If an Indemnifying Party fails to perform its obligations
under this Section 14.2, then the Indemnified Party may directly assume the
defense of the claim or assertion at issue, and such Indemnifying Party shall
promptly reimburse the Indemnified Party for all costs and expenses (including,
without limitation, attorneys' fees and expenses), incurred in connection
therewith. The Indemnified Party's failure to give timely notice or to provide
copies of documents or to furnish relevant data in connection with any such
third-party claim shall not constitute a defense (in part or in whole) to any
claim for indemnification by it. Each of CAI, CAHS, CHCM and BCBSNJ hereby
agrees not to settle or compromise any such third-party suit, claim or
proceeding without prior written consent of the applicable Indemnified Party,
which consent shall not be unreasonably withheld as to suits, claims and
proceedings at law.
14.3. Insurance. In order to secure their respective indemnity obligations
arising under this Section 14, (a) CHCM shall maintain in full force and effect
during the Term an occurrence basis (or if unavailable, a claims-made basis,
with appropriate "tail" coverage) policy or policies of professional
responsibility/errors and omissions/utilization review and utilization
management insurance in per occurrence and aggregate face amounts reasonably
acceptable to BCBSNJ, with insurance carriers reasonable acceptable to BCBSNJ,
naming BCBSNJ as an additional insured, such policy or policies not to be
cancelable upon less than thirty (30) days' prior notice, and providing that
BCBSNJ shall receive copies of all notices thereunder ("Acceptable Policies")
and (b) CAHS and CAI shall maintain Acceptable Policies in full force and effect
during the Term.
14.4. Survival. The terms and conditions of this Section 14 shall expressly
survive any termination of this Agreement and shall continue in full force and
effect thereafter.
15. General.
15.1. No Employment Relationship. Except as otherwise set forth herein, the
directors, partners, shareholders, trustees, officers, employees, agents or
representatives of any of the parties hereto shall not be deemed directors,
partners, shareholders, trustees, officers, employees, agents or representatives
of another party hereto, and such individuals shall not be entitled or eligible
to participate in or receive benefits or privileges provided or extended by
another party hereto to such party's directors, partners, shareholders,
trustees, officers, employees, agents or representatives.
40
<PAGE>
15.2. Survival. Except as may otherwise be specifically provided in this
Agreement, the representations, warranties, covenants, agreements and
undertakings contained in this Agreement and in any schedule, document,
agreement, certificate or other instrument executed and/or delivered pursuant
hereto shall survive the execution and delivery of this Agreement and the
consummation of the transactions called for hereby and shall remain in full
force and effect, regardless of any investigation made by or on behalf of any
party hereto.
15.3. Notice. All notices and other communications hereunder shall be in
writing and shall be deemed to have been given upon receipt, and shall be
addressed as follows:
If to CHCM: Contemporary HealthCare Management, Inc.
Metropolitan Corporate Center 485-C
Route 1 South
Iselin, New Jersey 08830
Attn: Richard Freeman, M.D., Vice President
If to BCBSNJ: Blue Cross and Blue Shield of New Jersey, Inc.
Three Penn Plaza East
Newark, New Jersey 07105-2200
Attn: Mr. Robert J. Pures
Senior Vice President - Administration, Chief
Financial Officer and Treasurer
with a copy to: Blue Cross and Blue Shield of New Jersey, Inc.
Three Penn Plaza East
Newark, New Jersey 07105-2200
Attn: Susan Scholle Connor, Esq.
General Counsel
If to CAHS: CareAdvantage Health Systems, Inc.
Metropolitan Corporate Center 485-C
Route 1 South
Iselin, New Jersey 08830
Attn: Mr. Thomas Riley
If to CAI: CareAdvantage, Inc.
Metropolitan Corporate Center 485-C
Route 1 South
Iselin, New Jersey 08830
Attn: Mr. Thomas Riley
41
<PAGE>
or to such other address as any party hereto shall have designated to the other
parties in accordance with the provisions of this Agreement.
15.4. Binding Agreement; Assignability. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors and permitted assigns and subcontractors. No party hereto shall sell,
assign, transfer, convey, subcontract or otherwise dispose of its rights or
obligations under, title to, or interest in, this Agreement, in whole or in
part, to any third party, except that:
(a) BCBSNJ may sell, assign, transfer, convey, subcontract or
otherwise dispose of its rights or obligations under, title to, or interest
in, this Agreement, to a successor-in-interest of all or substantially all
of its indemnity insurance business (i) in connection with (A) a transfer
to an Affiliate, (B) a reorganization or (C) a merger, consolidation or
other business combination, or (ii) in the event of a sale of substantially
all of its assets (whether through asset or stock sale or otherwise); and
(b) CHCM may (i) sell, assign, transfer, convey, subcontract or
otherwise dispose of its rights or obligations under, title to, or interest
in, this Agreement to any Affiliate, provided that such Affiliate agrees in
writing to be bound by all of the provisions hereof and, prior to such
Person ceasing to be an Affiliate, all such rights and obligations are
transferred back to CHCM or (ii) delegate or subcontract the performance of
any of its obligations under this Agreement, in each instance with the
prior written consent of BCBSNJ, to CAHS or any third-party subcontractor
that agrees to be bound by the confidentiality provisions hereof.
In connection with any delegation or subcontracting of obligations pursuant to
subclause (b) above, (I) CHCM shall supervise such performance to ensure that
such obligations are completed in accordance with the terms hereof in all
respects and (II) such performance shall not result in the payment of, or give
rise to a right of CHCM, CAHS or such subcontractor, as the case may be, to
receive, or an obligation on the part of BCBSNJ to make, any payment in addition
to the compensation as calculated pursuant to the terms of this Agreement for
any provision of Services rendered in connection with this Section 15.4. Nothing
expressed or implied in this Agreement is intended to, or shall confer upon, any
Person other than the parties hereto and their respective permitted assignees or
subcontractors (which the parties acknowledge and agree are third-party
beneficiaries hereof), any rights, remedies, obligations or liabilities under or
by reason of this Agreement.
15.5. Headings. The subject headings of the Sections and subsections of
this Agreement are included for purposes of convenience only and shall not
affect the construction or interpretation of any of its provisions.
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15.6. Entire Agreement; Amendment. This Agreement and all schedules and
exhibits attached hereto and thereto, which by this reference are incorporated
herein and made a part hereof, embody the entire agreement and understanding
among the parties hereto with respect to the subject matter hereof. The parties
hereto hereby acknowledge and agree that in the event of a conflict between the
terms and conditions of this Agreement and the terms and conditions of any
certificate or other instrument executed and/or delivered pursuant to this
Agreement, the terms and conditions of this Agreement shall control. This
Agreement may not be amended except by a writing executed by each of the parties
hereto.
15.7. Waiver. Waiver by the parties of a breach, failure or violation of
any provision of this Agreement may be made only in writing executed by the
parties hereto and such waiver shall not constitute a waiver of any subsequent
breach, failure or violation of the same or other provisions hereof.
15.8. Governing Law; Jurisdiction. This Agreement shall be construed in
accordance with and governed by the internal Laws of the State of New Jersey
applicable to contracts made and to be performed therein. Except as otherwise
set forth herein, the courts of the State of New Jersey in Essex County and the
United States District Court for the District of New Jersey shall have
jurisdiction over the parties with respect to any dispute or controversy among
them arising under or in connection with this Agreement and, by execution and
delivery of this Agreement, each of the parties to this Agreement submits to the
jurisdiction of those courts.
15.9. Severability. If any term of this Agreement or application thereof
shall be invalid or unenforceable, the remainder of this Agreement shall remain
in full force and effect.
15.10. Counterparts. This Agreement may be executed in several
counterparts, each of which is an original but all of which shall constitute one
and the same instrument.
15.11. Costs and Expenses. Except with respect to those costs and expenses
that the parties agree shall be divided equally or otherwise allocated, each
party shall bear such party's own costs and expenses (including, without
limitation, expenses of counsel, outside auditors and consultants) in
negotiating this Agreement and otherwise in connection with the transactions
contemplated hereby.
15.12. Interim Services Agreement. From and after the Effective Date, the
obligation of CAHS to provide utilization review services to BCBSNJ and the
obligation of BCBSNJ to pay CAHS for such services, in each case pursuant to the
Interim Services Agreement, shall be terminated.
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IN WITNESS WHEREOF, the parties hereto have duly executed and acknowledged
this Agreement as of the date first above written.
CONTEMPORARY HEALTHCARE
MANAGEMENT, INC.
By: /s/ Richard W. Freeman
------------------------------------
Title: Richard W. Freeman, M.D.
President
BLUE CROSS AND BLUE SHIELD
OF NEW JERSEY, INC.
By: /s/ Robert J. Pures
------------------------------------
Title: Robert J. Pures
SVP- Administration, Chief
Financial Officer $ Treasurer
CAREADVANTAGE HEALTH
SYSTEMS, INC.
By: /s/ Richard W. Freeman
------------------------------------
Title: Richard W. Freeman, M.D.
President
CAREADVANTAGE, INC.
By: /s/ Richard W. Freeman
------------------------------------
Title: Richard W. Freeman, M.D.
President
44
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Schedule 1.40
Prices for Services in Market Segments
(Prices per Exposed Subscriber per Service Month)
1997 1998 1999 2000
Market Segment Price Price Price Price
-------------- ----- ----- ----- -----
Individual Under 65 CMM $4.96 $4.61 $4.26 $4.26
Individual Under 65 non-CMM 4.96 4.61 4.26 4.26
Small Employer 5.19 4.82 4.45 4.45
Corporate 50-99 4.64 4.31 3.98 3.98
Corporate 100+ 2.06 2.06 2.06 2.06
National Accounts 2.06 2.06 2.06 2.06
State Account 1.70 1.70 1.70 1.70
Other Government Accounts 1.08 1.08 1.08 1.08
<PAGE>
Schedule 1.47
Performance Standards
CHCM shall comply with all customer service requirements as specified for
accreditation with URAC.
Unless more stringently specified by URAC standards, customer service levels
shall be maintained at least at the following levels:
Telephone calls shall be answered on average within 20 seconds.
Lost call ratios shall be maintained at under 5 percent.
Line busy rates shall be maintained at under 5 percent.
98% of prospective, urgent review appeals shall be decided and communicated
within one (1) business day of receipt.
98% of second level review appeals shall be decided and communicated within ten
(10) business days of receipt. 98% of third level appeals shall be decided and
communicated within twenty (20) business days of receipt of all relevant
information, including the clinical record.
CHCM shall develop, maintain and implement a written quality
management/improvement plan that is consistent with the BCBSNJ Service Quality
Plan and practices. The plan shall provide for the following elements:
Satisfactions surveys
Process tracking, stabilization and improvement
Employee education and involvement
RN peer review system
Silent telephone performance monitoring system
Staff audits and evaluation
<PAGE>
Schedule 1.54
Criteria for Identification of Large Medical Cases
Description
-----------
Neonatal Spina Bifida
Premature Delivery
Bronchopulmonary Dysplasia
Cystic Fibrosis
Hydrocephalus, newborn
Congenital Anomaly
Stroke/Cerebrovascular Accident Hemiplegia
Intracranial Hemorrhage
Respiratory Failure with Ventilator Dependence
Terminal Cancer
Muscular/Neurological Disorders Muscular Dystrophy
Multiple Sclerosis
Amyotrophic Lateral
Solerosis
Paralysis
Polio
Cerebral Palsy
AIDS, HIV+ and complications Kaposi Sarcoma
PCP-Pneumocystis Carinii
Pneumonia
Cryptosporidiosis
Lymphoma
Major Head Trauma/Traumatic Brain Injury Head Injury
Skull Fracture
Coma
Spinal Cord Injury Diseases of Spinal Cord
Fracture of Neck & Trunk
<PAGE>
Limb Amputation with Complications
Third Degree Burns
Other
- -----
1. Prolonged and complicated hospital stays.
2. Acute care stay which do not meet criteria but require skilled care.
3. All rehabilitation admissions.
<PAGE>
Schedule 1.54A
Services
For all services specified below, BCBSNJ will define the medical procedures to
which these services shall apply. The review protocols, guidelines and standards
used in the provision of the services specified below must be approved by BCBSNJ
in advance of their application and BCBSNJ may, from time to time, in its sole
and absolute discretion, modify such protocols, guidelines and standards. The
application of such protocols, guidelines and standards by CHCM, all physician
advisors and all other individuals providing services shall result in a uniform
and consistent application of a single set of protocols, guidelines and
standards for the provision of care.
It is understood that BCBSNJ shall maintain control of its preferred provider
networks in all respects (including, without limitation, the rates set for and
paid thereto), in addition to the selection of, and the rates set for and paid
to, all other providers of health care and all vendors utilized in connection
therewith as may arise in connection with the provision of Services.
Pre-certification Review Services -- Pre-certification Review is performed to
determine the appropriateness of proposed services, medical necessity of the
care setting, safe and effective alternatives to the planned services and
feasibility of any identified alternative setting. Precertification review also
serves as a case-identification device for initiation of concurrent review
services and large medical case management.
Pre-certification Review Services include the following:
Pre-admission Review -- Pre-admission review occurs prior to a
patient's non-emergency or scheduled inpatient admission to help
determine the medical necessity of the patient's inpatient
hospitalization and to establish an initial length of stay (LOS). If
the criteria for inpatient necessity is met, the case is certified and
an estimated number of days of inpatient stay is assigned based upon
pre-admission information. If the case cannot be certified by the
initial reviewer, the case is referred to a qualified physician
advisor for investigation, leading to the approval or denial of the
requested service and/or LOS.
Pre-certification of BCBSNJ-Selected Outpatient/Ambulatory Procedures
--Prospective review of BCBSNJ-selected surgical, diagnostic or
therapeutic outpatient procedure recommended for the patient occurs
prior to the rendering of the procedure to determine the medical
necessity of the procedure. If criteria are met, the case is
certified. If the case cannot be certified by the initial reviewer,
the case is referred
<PAGE>
to a qualified physician advisor for investigation, leading to
approval or denial of the requested service.
Physician advisors must review at least eight percent (8%) of all
pre-admission Review cases. As a result, physician advisors actively
participate in the development of treatment plans and discharge
planning activities (which activities are described in greater detail
below).
Only physician advisors may decline to approve benefits for requested
services.
Concurrent Review Services -- Concurrent review determines if care being
rendered is medically necessary and effective, and if it is being rendered at
the appropriate level of care for the patient's condition.
Concurrent review services are applicable to acute and non-acute medical
services. Approval for extensions of LOS or services beyond original
authorizations must be certified by a licensed registered nurse ("RN") or a
qualified physician advisor using BCBSNJ-approved clinical guidelines, which
guidelines may be modified by BCBSNJ from time to time in its sole and absolute
discretion. Non-physician case managers must refer questionable cases to
physician advisors for review. Only physician advisors may decline to approve
benefits for requested services.
Physician advisors must review at least ten percent (10%) of all
concurrent review cases.
CHCM may conduct concurrent review by on-site nurse case managers or
physician advisors whenever financially feasible and agreeable for the
BCBSNJ client.
In addition to the foregoing, concurrent review services include the
following:
Daily or intermittent concurrent inpatient care management and
case review.
Regular reassessment of LOS assignment.
Discharge planning and support services for any continuation of
care management needed by the patient upon discharge including
home health care, specialty referral and coordination of
post-delivery services.
Outpatient case coordination -- Outpatient case coordination
includes working with hospital staff and community resources when
referrals are made for home health care services, specialty
services, durable medical equipment or other post-delivery
services that are requested and medically appropriate.
<PAGE>
Referrals shall be to providers in preferred provider networks established by
BCBSNJ at preferred rates, provided, however, other providers may be used if
cost effectiveness can be demonstrated.
Large Medical Case Management Services -- Large medical case management involves
the coordination of care for selected catastrophic or potentially high dollar
cases. Licensed RNs assist the patient and the patient's family and primary care
physician in reviewing treatment plans and special services needed for care
management. Physician Advisors shall be consulted during the review of any
questionable case or plan of treatment. BCBSNJ will determine the guidelines for
case selection and case management services to be provided and may, from time to
time, in its sole and absolute discretion, redefine the guidelines.
Large medical case management services include the following:
Identification and management of cases involving long-term or
catastrophic illness or injury to ensure cost-effective utilization of
benefits.
Investigation of referrals from BCBSNJ, the pre-admission review, the
providers and the individual BCBSNJ subscribers to determine medical
appropriateness of large medical case management services.
Identification, investigation and use of cost-effective alternative
settings.
Case acceptance and receipt of a signed agreement from patient or
patient's guardian for services to be provided; establishment and
maintenance of appropriate contact with BCBSNJ marketing divisions,
patients and patients' family and providers.
Provision of discharge planning support to assist social services,
hospital utilization review and staff and nursing services to place
the patient in sub-acute facilities or in the home for continued
therapy when medically appropriate.
Use, whenever possible, of preferred provider networks established by
BCBSNJ for the provision of appropriate services at preferred rates;
however, other providers may be used if cost-effectiveness can be
demonstrated and prior approval is received from BCBSNJ in each
instance.
Procedure Certification/Mandatory Second Surgical Opinion Services (MSSOP) --
These services are provided for all subscriber contracts requiring MSSOP. These
services shall be incorporated into the pre-certification review services
described above.
MSSOP services include the following:
<PAGE>
Utilization of a second opinion panel of qualified specialists
developed and maintained by BCBSNJ.
Provision for telephonic interviewing of patients and their attending
physician/surgeons for the evaluation of proposed surgical and
diagnostic procedures for appropriateness of care.
Arrangement, if requested by the patient or patient's representative,
for a third opinion in the event of a non-confirming second opinion.
Retrospective Review Services -- The retrospective review process is conducted
when precertification has not been obtained or when a BCBSNJ client receives
services that were not authorized. The medical record is reviewed by a physician
advisor to ascertain if the admission or days of care in question met medical
necessity criteria. Information obtained from retrospective chart review shall
be used to evaluate quality of care and appropriateness of services and to
monitor trends in the delivery of health care services.
CHCM shall perform retrospective review of cases that were or should have been
subject to precertification review or concurrent review by CHCM and when a
BCBSNJ client receives services that were not authorized. The results of such
review shall be reported promptly to BCBSNJ for its claim action. BCBSNJ shall
also perform retrospective review necessary to support its basic business
functions. CHCM and BCBSNJ retrospective review functions shall be coordinated
in such a fashion as to minimize duplication and unnecessary administrative
burden either upon themselves or upon providers.
BCBSNJ shall provide to CHCM paid claims data necessary to conduct retrospective
analysis at regular intervals to be mutually agreed to by the parties, but in
any event, no less than semi-annually.
Retrospective review services include the following:
Performance of retrospective medical record review to analyze and
evaluate medical appropriateness, admissions, LOS and level and
quality of care.
Conduct of focused and random retrospective reviews to ensure Plan
payment is made for medically appropriate admissions. For the purposes
of this review, two percent (2%) of all cases subject to CHCM review
shall be reviewed annually.
Quarterly analysis and evaluation of medical appropriateness, hospital
admission and LOS trends, level and quality of care and changes in
medical care patterns shall be conducted quarterly and shall be
promptly reported to BCBSNJ.
<PAGE>
Communication and Reporting Requirements -- Communication mechanisms will
include, as appropriate, CHCM provided publications and circulars, telephone,
facsimile, meeting and seminars, written correspondence, and electronic data
transmissions and techniques.
Communication services will include, but not be limited to, the following:
Communication to BCBSNJ of all decisions regarding medical
appropriateness of pre-certification review, concurrent review,
pre-procedure review and large medical case management to facilitate
claims adjudication and assist with client relations. Such
communications will include automated linkages to BCBSNJ claims
systems and individual discussions where required by BCBSNJ. The
current recording of pre-certification review, concurrent review,
pre-procedure review and large medical case management review on CARS
screens shall be maintained until a mutually agreeable alternative has
been developed.
Communication of utilization management decisions shall be made to
subscribers, their physicians and hospitals by telephone, written
correspondence and systems updates. Communication timeliness shall be
as specified by URAC and shall utilize forms approved by BCBSNJ.
Communication to network hospitals shall be made to assure proper
understanding and use of utilization management procedures, policies
and practices. Communication with physicians and other provider
communities shall be made to explain and justify review and treatment
protocols, cost containment measures and case management findings.
Appeals -- In order to provide mechanisms that will assure, and be seen to
assure, fairness in Utilization Management processes with respect to the
provision of services to health care recipients, a three (3) level appeals
process shall be established and maintained. With the prior approval of BCBSNJ,
CHCM shall establish and maintain the required mechanisms for such appeals
process and provide technical and administrative support therefor. Except as set
forth above with respect to such mechanisms and support, the appeals process
shall be conducted and controlled in all material respects by BCBSNJ.
The three levels of medical appeal shall include:
Review by the physician advisor rendering an initial denial where
additional clinical information is presented, which may be used to
modify the original decision.
Review by a physician advisor, other than the physician advisor
rendering the original decision, who is a licensed, board certified
physician or other medical
<PAGE>
specialist in the same or similar specialty as typically manages the
medical condition, procedure or treatment as mutually deemed
appropriate.
Review by a panel of reviewers that shall include a representative of
each of the following organizational units: CHCM, BCBSNJ medical
staff, BCBSNJ legal staff and the appropriate BCBSNJ Marketing
Divisions.
When ASO cases are appealed, a fourth level of appeal shall include the
BCBSNJ clientpurchaser of the benefit plan.
All appeals will be reviewed promptly and resolved within the time frames
specified by URAC. Decisions shall be communicated in writing to those
affected (patient, physician, and hospital). Data regarding appeals and
their results shall be used by CHCM in reviewing and educating review
personnel.
Appeals unrelated to clinical decisions on medical necessity and
appropriateness, which may include scope of benefits and administrative
matters, shall be reviewed and decided by BCBSNJ.
Customer Service -- CHCM shall comply with all customer service requirements as
specified for accreditation with URAC.
Unless more stringently specified by URAC standards, customer service levels
shall be maintained at least at the following levels:
Telephone calls shall be answered on average within 20 seconds.
Lost call ratio shall be maintained at under five percent (5%).
Line busy rates shall be maintained at under five percent (5%).
98% of prospective, urgent review appeals shall be decided and communicated
within one (1) business day of receipt.
98% of second level review appeals shall be decided and communicated within
ten (10) business days of receipt. 98% of third level appeals shall be
decided and communicated within twenty (20) business days of receipt of all
relevant information, including the clinical record.
Account Education and Relations -- CHCM shall provide account education and
relations services relating to utilization review and utilization management,
including, without limitation, provision of communications materials to support
the BCBSNJ marketing divisions in their dealings with
<PAGE>
BCBSNJ customers and the Serviced Population, the cost of such materials to be
agreed upon by the parties (other than utilization reporting materials prepared
in the ordinary course of business, which shall be provided without charge by
CHCM);
CHCM shall be involved in the planning and conduct of new account education.
CHCM's sales staff shall be available and participate, if requested, with BCBSNJ
in the sale of CHCM's services to new accounts and prospects.
Product Development -- CHCM shall reasonably cooperate with BCBSNJ in the
development of the Utilization Review and Utilization Management components of
future products and lines of business.
Group Claims and Utilization Reporting
BCBSNJ shall retain responsibility for group claims, basic utilization and
reporting of actuarial data to BCBSNJ customers. CHCM and BCBSNJ shall
develop specifications for a mutually acceptable level of detail and
frequency of reporting necessary to meet requirements to be set by BCBSNJ.
<PAGE>
Schedule 5.2(a)
Qualifications and Criteria for
Professional Review and Case Management Personnel
and Certain Review and Support Staff
Appropriately qualified professional review personnel shall review cases and
provide indicated authorizations and certifications according to BCBSNJ-approved
review protocols and procedures. Qualifications are described below and must be
met unless a higher standard is required for URAC certification, which shall
supersede the requirements described below.
Appropriately trained non-clinician staff (subject to BCBSNJ approval),
licensed registered nurses or Physician Advisors may pre-certify requested
services.
New Jersey licensed registered nurses (RNs), using BCBSNJ approved
criteria, or Physician Advisors may provide approval for extension of stay
or services beyond initial authorizations.
Under no circumstances shall a reviewer, other than an appropriately
qualified Physician Advisor, render a non-certification decision. Physician
Advisors shall review all admissions and continued stays that do not
satisfy guidelines for inpatient care, and all determinations require
interaction with the patient's attending physician.
CHCM shall maintain a team of expert Physician Advisors, appropriately
qualified, to provide all necessary services to BCBSNJ.
All review and support staff shall receive initial and regular continuous
training in medical terminology, utilization management practices, review
protocols, telephone techniques, computer and systems techniques, insurance
plan programs, hospital guidelines, URAC policies and procedures, and other
topics to ensure first quality service and to comply with URAC
accreditation requirements.
<PAGE>
Schedule 5.5
Designated Employees
Individual Title
- ---------- -----
Richard Freeman Senior Vice President
Ellen Friedman Vice President of Care Management
<PAGE>
Schedule 5.7
Required Reports and Reporting Intervals
CHCM shall provide the following quarterly reports to BCBSNJ:
Activity Reports showing, at a minimum, 1) Total
Reviews, Days Requested, Days Approved, and Days
Denied for all inpatient cases (specifying, as
appropriate, subacute inpatient cases,
rehabilitative facility cases and skilled nursing
facility cases) initiated during the quarter, 2)
Outpatient Services Reviewed, Services Approved,
and Services Denied, 3) the number and percentage
of i) inpatient and ii) outpatient cases referred
to Physician Advisors during the quarter and 4)
results of all case management activities,
including case volumes and estimated savings.
Efficiency Reports showing, at a minimum, Staffing
and activity including phone calls, Faxes, Total
Inpatient Review, Total Outpatient Review, Number
of Retrospective Reviews, and Number of Large
Medical Case Management cases opened, number
closed, and number open at the end of the Quarter.
HEDIS-compatible reports identifying savings in
medicine and surgery resulting from review, impact
on length of stay, appropriateness of setting,
necessity of procedures and case management
aversion.
Customer Service Reports showing, on a weekly
basis: 1) the percentage of calls answered within
20 seconds; 2) lost call ratios; and 3) line-busy
ratios.
Results of Retrospective Reviews will be reported as reviewed, which shall be no
less frequently than semi-annually.
Customer Service Reports will be sent to BCBSNJ promptly following the end of
the month. All other reports will be sent to BCBSNJ within 45 days following the
end of the quarter.
Report formats and content will be suggested by CHCM and shall be subject to
approval by BCBSNJ.
<PAGE>
Schedule 7.4
Litigation
CAI has been served with a demand for Arbitration by Mr. John Lincoln, a former
employee as claimant (the "Claimant"), dated November 13, 1995 pursuant to the
American Arbitration Association Commercial Arbitration Rules. The Demand for
Arbitration alleges that CAI breached the Claimant's written employment
agreement by failing to pay salary to the Claimant and by its subsequent failure
to pay liquidated damages. By letter dated October 31, 1995, CAI terminated the
employment agreement with the Claimant for "cause" as defined in the employment
agreement. The Demand for Arbitration specifies a claim for relief by the
Claimant of approximately $625,000 in salary plus other unspecified compensatory
and punitive damages. CAI has recorded separation costs of $640,000 in
connection therewith as of October 31, 1995.
CAI and the Claimant have been engaged in settlement discussions since the
filing of the Demand for Arbitration and Management believes that the parties
have reached an agreement in principle on the material terms of a proposed
settlement, subject to the preparation and execution of definitive settlement
agreements. No assurances can be given, however, that the settlement of this
proceeding will be effectuated.
On January 30, 1995, CAI entered into a three (3) year Consulting Agreement with
a consultant, Robert T. Caruso (the "Consultant"), who was an executive of the
former parent company, for strategic planning services and assistance in
securing financial arrangements. This Consulting Agreement was terminated on
April 24, 1995 in connection with the closing of the Separation Agreement with
Primedex Health Systems, Inc. On May 1, 1995, CAI agreed to enter into a new
consulting agreement with an entity (the "Entity") affiliated with the
Consultant (the "New Consulting Agreement") providing for payments for services
at the monthly rate of $38,500 to commence on October 1, 1996 (one day after the
expiration of the Consultant's consulting agreement with Primedex Health
Systems, Inc.) and to terminate on December 31, 1998. Pursuant to the New
Consulting Agreement, the Entity will provide advice and counsel to CAI
regarding business strategies and implications, oversight and assistance in
financing arrangements. On August 22, 1995, pursuant to a resolution approved by
its Board of Directors on August 17, 1995, CAI terminated the New Consultation
Agreement with the Consultant or any entity affiliated with the Consultant for
cause. Management believes that any potential claim against CAI by the
Consultant is without merit.
<PAGE>
Schedule 7.5
Licenses Required to Perform Obligations
The following licenses are to be maintained until BCBSNJ approved replacement
systems/licenses are in place:
Medical Approval Protocol System (MAPS)
PAS length of stay tables
Access to BCBSNJ's National Second Opinion Panel for a Second Opinion Network
MEDecision site licenses
<PAGE>
Exhibit 4.1(d)
Illustrative Quarterly Bonus Payment Calculation
as of Third-Quarter 1997
Assumptions: Entries in columns (1), (2), (3)
First-Quarter Payment (FQP) = $0, Second-Quarter
Payment (SQP) = $10,000
(1) (2) (3) (4) (5)
Individual Under 65 CMM 15 550 500 515 $222,075
Individual Under 65 non-CMM 65 365 325 330 320,775
Small Employer 75 285 250 250 0
Corporate 50-99 25 310 280 275 (123,375)
--------
S
Section
Reference
---------
(1) = Average number over first nine months of 1997 of
members of the Serviced Population for the
Current Year/1,000 N/A
(2) = Days/1,000 Prior Year 1.3
(3) = Days/1,000 Current Year 1.2
(4) = Target = (2) - 35 1.57
(5) = Calculation = [(4) - (3)] x $987 x (1) 1.7
S = Sum of entries in column 5 = $419,475 1.7
Annualized Bonus Payment (ABA) = .25 x S (if S >= 0) = $104,869 1.7
Third-Quarter
Bonus Payment = .60 (ABA/4) + [[(.60 ABA/4) x 2] - (FQP + SQP)] 4.1(d)
= $15,730 + [($31,461 - ($0 + $10,000)]
= $37,191
<PAGE>
Exhibit 10.3(a)
Form of Post-Termination License Agreement
[Not attached; on file with the Company]
JOINT SERVICES AGREEMENT
THIS JOINT SERVICES AGREEMENT ("Agreement") is entered into on this 29th
day of May, 1997 (the "Effective Date"), by and among ALLIED HEALTH GROUP, INC.,
a Florida corporation ("Allied"), CAREADVANTAGE HEALTH SYSTEMS, INC., a Delaware
corporation ("CareAdvantage"), and CAREADVANTAGE, INC., a Delaware corporation
and the owner of one hundred percent of the capital stock of CareAdvantage
("Parent").
RECITALS
A. CareAdvantage anticipates entering into contracts with Blue Cross/Blue
Shield Plans (the "Blues Plans") throughout the United States pursuant to which
it will deliver specialized health care cost management services in the form of
physician management of specialty networks ("Specialty Physician Management
Services").
B. CareAdvantage lacks the expertise to deliver Specialty Physician
Management Services, and Allied is experienced in the delivery of Specialty
Physician Management Services. CareAdvantage intends to develop, over time and
with Allied's assistance, its own in-house expertise in Specialty Physician
Management Services.
C. Allied and CareAdvantage desire to establish a formal relationship with
respect to the performance of Specialty Physician Management Services.
D. Parent is willing to guarantee the performance of CareAdvantage
hereunder.
NOW, THEREFORE, for and in consideration of the mutual covenants and
agreements herein set forth, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree as follows:
1. RECITALS. All of the above recitals are true and correct.
2. TERM. This Agreement shall commence and become effective on the
Effective Date and shall continue in full force and effect for a period of three
years thereafter (the "Term"). The Term of this Agreement shall automatically
renew for additional three-year periods, unless either Allied or CareAdvantage
gives notice to the other of its intent not to renew the Agreement at least 90
days before the end of any such three-year period. In any event, this Agreement
may be terminated earlier pursuant to Section 3 hereof. Each twelve-month period
commencing upon the Effective Date of the Term or any anniversary thereof shall
be referred to herein as "Annual Period".
3. TERMINATION.
3.1 In General. This Agreement shall terminate:
3.1.1 Breach. If a party is in any material respect in
breach, default or violation of any provision of this Agreement and either (I)
fails to cure such material
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breach, default or violation within 30 days after notice to do so (or within
said 30 days to commence such cure and thereafter diligently to prosecute such
cure to completion), or (ii) has been notified on two prior occasions of
breaches pursuant to this Subsection 3.1.1.
3.1.2 Failure to Perform. Without notice, upon the
suspension, revocation, or cancellation of the other party's right to perform
the services described herein under the laws of any applicable jurisdiction; or
by the placing or imposing f any restrictions or limitations by any governmental
authority having jurisdiction over the party, upon it so that it cannot engage
in the services described herein.
3.2 Payments Upon Termination.
3.2.1 Termination Without Cause. If this Agreement is
terminated other than as provided at Subsection 3.1, or if the Term of this
Agreement expires by its terms, Allied and CareAdvantage shall continue to
perform Specialty Physician Management Services for the Blues Plans for which
Allied or CareAdvantage is providing such services at the time of expiration of
this Agreement (the "Existing Blues Plans"), for so long as Allied or
CareAdvantage performs any Specialty Physician Management Services for the
Existing Blues Plans, whether pursuant to a contract in existence upon
termination of this Agreement or otherwise. Such services shall be performed
under the same terms and conditions as set forth in this Agreement; provided,
however, that Capitation Payments shall be allocated between Allied and
CareAdvantage as set forth at Subsection 7.1.3. In addition, the parties shall
have no obligation to one another with respect to Blues Plans for which neither
Allied nor CareAdvantage is providing such services at the time of expiration of
this Agreement.
3.2.2 Termination for Cause. If this Agreement is terminated
as provided at Subsection 3.1, the parties agree to negotiate in good faith, for
a period of 45 days from the date of termination of this Agreement, a settlement
of their respective obligations to one another for the Blues Plans for which
Allied or CareAdvantage is providing Specialty Physician Management Services at
the time of expiration of this Agreement. If the parties do not come to an
agreement on or before the end of such 45-day period, they shall submit such
matters to arbitration pursuant to Subsection 11.10. In addition, the parties
shall have no obligation to one another with respect to Blues Plans for which
neither Allied nor CareAdvantage is providing such services at the time of
expiration of this Agreement.
4. REPRESENTATIONS, WARRANTIES AND COVENANTS. Each of the parties
hereto represents, warrants and covenants to the other party (i) that this
Agreement constitutes its valid and binding obligation, enforceable against it
in accordance with its terms, except as enforceability hereof may be limited by
bankruptcy, insolvency, reorganization or other laws affecting generally the
enforcement of creditors' rights and except as the remedy of specific
performance and injunctive and other forms of equitable relief may be subject to
equitable defenses; (ii) that neither the execution nor delivery of this
Agreement or the performance by it of any of the covenants hereunder will
constitute a default under any contract, agreement or obligation to which it is
a party or by which it or any of its property is bound; (iii) that there are no
lawsuits, arbitrations, actions or other proceedings (equitable, legal,
administrative or otherwise) pending or (to the best of its knowledge)
threatened which could
2
<PAGE>
adversely affect the validity or enforceability of this Agreement or its
obligations or ability to perform its obligations hereunder; (iv) that no
consent, approval or authorization of, or notification to, any governmental
entity or any other person or entity is required in connection with the
execution, delivery or performance of this Agreement by it; (v) that it shall be
responsible for obtaining and maintaining any and all licensure for its
activities under this Agreement; (vi) that it will comply with all applicable
federal, state and local laws and regulations in performing its duties,
obligations and operations under this Agreement, including, without limitation,
all licensing laws and regulations and laws and regulations relating to Medicare
and Medicaid reimbursement; (vii) that it shall not during the Term fall under
any restriction prohibiting or limiting its ability to enter into or perform
under this Agreement; and (viii) that it shall not during the Term, and
thereafter, act in any matter inconsistent with the rights of the other party as
set forth in this Agreement or in a manner so as to prejudice the reputation of
the other party.
5. MUTUAL COVENANTS.
5.1 Specialty Physician Management Services. Allied and
CareAdvantage will perform Specialty Physician Management Services in a manner
that complies with the obligations under contracts with the Blues Plans.
Specialty Physician Management Services will include the Front Room Services and
the Back Room Services. For this purpose, "Front Room Services" means the
marketing and implementation of Specialty Physician Management Services,
including physician and plan contracting, mailings and required educational
services. "Back Room Services" includes customer services, claims status and all
claims processing, including generation of reports and required medical
information systems support. Allied and CareAdvantage will perform the work in
the following manner:
5.1.1 First Annual Period. During the first Annual Period,
Allied will perform all Specialty Physician Management Services under the Blues
Plans.
5.1.2 Second Annual Period. During the second Annual Period,
Allied will perform Specialty Physician Management Services for all but up to
two Blues Plans. CareAdvantage will have the option to provide Front Room
Services for up to two Blues Plans for which Allied has not provided Front Room
Services pursuant to Subsection 5.1.1 and, in such event, Allied will only
provide Back Room Services for such Blues Plans. Allied will also continue to
train CareAdvantage in Specialty Physician Management Services. CareAdvantage
may exercise its option by providing written notice to Allied no later than ten
business days prior to the effective date of any contract for Specialty
Management Services with any such Blues Plan. If written notice is not provided
to Allied as set forth herein, CareAdvantage shall be deemed to have waived its
option with respect to such Blues Plan.
5.1.3 Third Annual Period. During the third Annual Period,
Allied will perform Specialty Physician Management Services, except at
CareAdvantage's option, CareAdvantage may provide Front Room Services for any
Blues Plans for which Allied has not provided Front Room Services pursuant to
Subsection 5.1.1 or 5.1.2.
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<PAGE>
5.2 Designating Party. Allied and CareAdvantage will mutually
agree on whether Allied, CareAdvantage or some other jointly controlled entity
should be the appropriate party to any contract to provide Specialty Physician
Management Services to any Blues Plan. Hereinafter, the party which has
contracted with a Blues Plan is sometimes hereinafter referred to as a
"Contracting Party."
5.3 Marketing Program. The parties agree that it is in their
mutual interest to create a high level of demand for Specialty Physician
Management Services through a professional planned promotion and marketing
campaign targeting the Blues Plans, which presents a uniform high quality image
with respect to Specialty Physician Management Services. The parties shall
jointly develop the promotion and marketing campaign.
5.4 Reporting Requirement. The parties agree that they will
report to, and maintain consistent communication with, the President and other
executives of each party and any other related entities, and otherwise conduct
the duties required pursuant to this Agreement in a manner that enhances and
promotes the transactions contemplated hereby.
5.5 Expenses. All marketing and sales expenses will be borne by
the parties in the same proportion as they share in the Service Fee (defined
below).
5.6 Modification of Compensation. Notwithstanding the provisions
of Section 7 below, the parties recognize that some of the products that are
being or will be offered to customers for Specialty Physician Management
Services may not fit the economic model envisioned at Section 7. In such a
situation, the parties agree that they will in good faith attempt to revise the
economic structure to create a budget tailored to the needs of the customer, and
to appropriately divide the Service Fee. If the parties cannot agree to any
modification of compensation hereunder, they shall submit their disputes to
arbitration pursuant to Subsection 11.10.
6. STATUS; INDEPENDENT CONTRACTOR. In fulfilling their obligations and
carrying out their duties and obligations under this Agreement, the parties
shall be independent contractors. Neither this Agreement nor the fulfillment of
any of its terms or obligations of the parties under this Agreement shall be
deemed or construed (i) to create any partnership, joint venture or
employer/employee relationship between the parties, or any affiliate, employee,
officer, agent or associate of a party, or (ii) to cause any party to be
responsible in any way for the debts, liabilities or obligations of any other
party.
7. COMPENSATION.
7.1 Capitation Payments. The Blues Plans will pay to the
Contracting Party payments, on a per member, per month basis ("Capitation
Payments"). The parties shall allocate, on a contract by contract basis, an
agreed upon percentage of the Capitation Payments as payment for Specialty
Physician Management Services (the "Service Fee"); provided, however, that in no
event shall the Service Fee for any Blues Plan be less than 9% of the Capitation
Payments. The remainder of the Capitation Payments shall be allocated to
physicians who rendered specialty health care services to Blues Plan enrolls
during the prior month, as a
4
<PAGE>
part of the Back Room Services. The Services fee shall be allocated between the
parties in the following manner:
7.1.1 First Annual Period. During the first annual Period
(i) 9% of the Capitation Payments will be allocated to Allied (2% for Front Room
Services and 7% for Back Room Services), and (ii) any remaining Service Fee
shall be divided equally between the parties.
7.1.2 Second Annual Period. During the Second Annual Period
(i) 2% of the Capitation Payments will be allocated for Front Room Services to
either Allied or CareAdvantage, as the case may be, (ii) 7% of the Capitation
Payments shall be allocated to Allied for Back Room Services, and (iii) any
remaining Service Fee shall be divided equally between the parties.
7.1.3 Third Annual Period. During the Third Annual Period
(i) 2% of the Capitation Payments will be allocated for Front Room Services to
either Allied or CareAdvantage, as the case may be, (ii) 7% of the Capitation
Payments shall be allocated to Allied for Back Room Services, and (iii) any
remaining Service Fee shall be divided equally between the parties.
7.2 Payment of Service Fee. The Contracting Party shall receive
Capitation Payments for the benefit of Allied, CareAdvantage and physicians who
render specialty health care services to Blues Plan enrollees and, accordingly,
shall have contractual and fiduciary obligations to manage Capitation Payments
in accordance with this Agreement. Any and all Capitation Payments shall be
deposited into a separate account maintained by the Contracting Party for the
purpose of receiving and disbursing Capitation Payments as set forth at
Subsection 7.1 (the "Account"). Disbursements from the Account, whether by
check, wire or otherwise, shall require the signature of one representative of
Allied and one representative of CareAdvantage. Funds shall be disbursed from
the Account, as set forth at Subsection 7.1, by federal funds wire transfer
within five business days after deposit of a check representing Capitation
Payments into the Account. The parties acknowledge that disbursement of
Capitation Payments in a timely manner is essential in order to, among other
things, compensate physicians who render specialty health care services to Blues
Plan enrollees.
7.3 Additional Payments.
7.3.1 Payments to Allied. Allied shall receive 20% of the
Profits earned by CareAdvantage during the life of the contract for the
provision of utilization management and/or disease management services to any
third party payor if Allied provides Substantial Assistance in obtaining such
business relationship for CareAdvantage. For purposes of this Agreement,
"Substantial Assistance" means bringing a party in contact with persons, whether
individuals or entities, that are instrumental in such party's obtaining a
business relationship with a third party payor within six months of the initial
contact. For purposes of this Agreement, "Profits" means the total fees received
by CareAdvantage or Allied, as applicable, for services rendered, less expenses
(including an allocable portion of corporate overhead)
5
<PAGE>
reasonably approved by the other party, but before interest, taxes, amortization
and extraordinary events.
7.3.2 Payments to CareAdvantage. CareAdvantage shall receive
20% of the Profits earned by Allied after deducting for the provision of
Specialty Physician Management Services to any third party payor (other than a
Blues Plan) if CareAdvantage provides Substantial Assistance in obtaining such
business relationship for Allied.
7.4 Exclusions from Capitation Payments. Notwithstanding the
provisions of Subsection 7.1 above, Capitation Payments under the following
Blues Plan contracts will be allocated as follows:
7.4.1 Allied has an existing written agreement with
Medigroup of New Jersey, Inc. d/b/a HMO Blue ("HMO Blue"), dated January 2, 1997
(the "HMO blue Agreement"). The HMO Blue Agreement was amended by letter
agreement dated March 1, 1997 by and among HMO Blue, Allied and CareAdvantage
(the Letter Agreement"). The Capitation Payments payable under the HMO Blue
Agreement, as amended by the Letter Agreement, will be excluded from the
Capitation Payments distributed above and will be allocated pursuant to the HMO
Blue Agreement and the Letter Agreement.
7.4.2 If Specialty Physician Management Services are
performed for Blues Plans in Rhode Island, Vermont or Maine, the remaining
Capitation Payments described at Paragraphs 7.1.1 (ii), 7.1.2 (iii) and 7.1.3
(iii) will be divided 60% to CareAdvantage and 40% to Allied.
7.4.3 If Specialty Physician Management Services are
performed for Blues Plans in North Carolina or Virginia, then, notwithstanding
Subsection 5.1, Allied will perform both Front and Back Room Services during the
life of the contract, but CareAdvantage will be paid by Allied 10% of the
Service Fee. Further, if CareAdvantage performs case management services for any
Blues Plans in North Carolina or Virginia, Allied will be paid by CareAdvantage
40% of the Profits earned by CareAdvantage for such services.
7.5 Books, Records and Reports. Disbursements from the Account
pursuant to Subsection 7.2, and other payments pursuant to Subsections 7.3 and
7.4, shall be accompanied by a detailed report setting forth computations with
respect thereto. If the receiving party (the "Receiving Party") shall disagree
with the computations set forth in any such report, the Receiving Party shall be
entitled to inspect and conduct an audit of the Contracting Party's books and
records with respect to Capitation Payments and other payments described in
Subsection 7.3 and 7.4, as applicable. The Contracting Party shall cooperate
with the Receiving Party and its representatives during the course of the
inspection and audit, and shall make its books and records with respect to such
payments available at its offices during normal business hours, or at such other
time and place as the parties shall agree, and in all cases without disruption
to the business of the Contracting Party. Upon completion of the inspection and
audit, the parties shall reconcile and promptly pay any amounts owed to one
another. If additional amounts owed to the Receiving Party exceed $25,000, the
Contracting Party shall pay all reasonable fees and expenses incurred by the
Receiving Party in connection with the Receiving
6
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Party. If the parties disagree with the results of the inspection and audit, or
if the Receiving Party determines not to conduct an inspection and audit, the
parties agree to negotiate in good faith, for a period of 45 days from the later
of the date of the report in dispute an the date of completion of the audit, a
settlement of payments owed to one another. If the parties do not come to an
agreement on or before the end of such 45-day period, they shall submit such
matters to arbitration pursuant to Subsection 11.10.
8. NON-DISCLOSURE, NON-SOLICITATION AND EXCLUSIVITY.
8.1 Non-Disclosure. The parties agree that all information
pertaining to the prior, current or contemplated businesses of the parties and
any affiliated entity constitutes the valuable and confidential assets of that
party. Such information includes, but is not limited to, information related to
trade secrets, management techniques and systems, medical review systems,
financial analyses, provider lists and information relating to providers,
supplier list, suppliers, client lists, marketing studies and plans, computer
software used by and/or developed by or for that party, financing techniques and
sources, profit and loss and other financial statements of that party or any
affiliated entity, this Agreement and any other confidential information which
is of special and unique value to that party or any affiliated entity. The
parties shall hold all such information in trust and confidence for the other
party or any affiliated entity and shall not use such information other than in
connection with the performance of duties under this Agreement. In addition, all
such information will not be disclosed to any third party without the prior
written consent of the other party; provided, however, that (i) any of such
information may be disclosed to those of a party's representatives who need to
know such information for the purpose of performing duties under this Agreement
(it being understood that (a) such representatives shall be informed by the
party of the confidential nature of such information and (b) shall be directed
by the party to treat such information confidentially,) and (ii) any disclosure
or other use of the information may be made to which the other party consents in
advance in writing. Each of the parties agree to be responsible for any breach
of this Agreement by any person to whom such party has provided such
information, or any portion thereof. If a party or any person to whom a party
has provided such information becomes legally compelled (by oral question,
deposition, interrogatory, request for documents, subpoena, civil investigative
demand or similar process) to disclose any such information, the party shall
promptly notify the other party of such requirement before any disclosure is
made so that the other party may seek a protective order or other appropriate
remedy and/or waive compliance with the terms of this Agreement. If such
protective order or other remedy is not obtained, or if the other party waives
compliance with the provisions hereof, the party agrees that only that portion
of the information which the party is legally required to disclose (as advised
by a written opinion of counsel) will be disclosed, and the party agrees to
exercise best efforts to obtain assurance that the information will be treated
confidentially upon disclosure. The parties and their representatives shall not
be liable for the disclosure to such tribunal unless such disclosure was caused
or resulted from a disclosure by the parties or their respective representatives
not permitted hereunder.
8.2 Non-Solicitation/Non-Competition. For a period of five years
after expiration or termination of this Agreement, CareAdvantage agrees that it
will not, directly or indirectly, other than pursuant to Subsection 3.2 of this
Agreement or with respect to any Blues Plan, provide, or have any interest,
whether as an employee, officer, director, shareholder,
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partner, contractor, consultant or advisor, in any person or entity that
provides, Specialty Physician Management Services to a third party payor or
physician network which has its principal office located in any state where
Allied provides Specialty Physician Management Services or is negotiating to
provide Specialty Physician Management Services at the time of expiration or
termination of this Agreement. In Addition, CareAdvantage agrees that, during
the Terms of this Agreement and for a period of five years thereafter, it will
not directly or indirectly (i) interfere with or disrupt or attempt to disrupt,
or take any action that could reasonably be expected to disrupt, any past or
present or prospective relationship, contractual or otherwise, between Allied
any third party payor, physician network, physician, supplier, sales
representative or employee of Allied; (ii) solicit for employment or attempt to
employ, or assist any other entity in employing or soliciting for employment,
either on a full-time or part-time or consulting basis, any employee who is or
was employed by Allied; or (iii) solicit any person to whom Allied has provided
or currently provides Specialty Physician Management Services, in any manner
which interferes or might interfere with such person's relationship with Allied,
or in any effort to obtain such person for any person or entity that is directly
or indirectly in competition with Allied.
8.3 Exclusivity. The parties agree to devote the requisite
ability, attention, energy, knowledge, loyalty, skills, talent and time to
properly develop, market and promote the Specialty Physician Management
Services. During the Term, the parties agree that they will not provide, or have
any interest, whether as an employee, officer, director, shareholder, partner,
contractor, consultant or advisor, in any person or entity that provides,
Specialty Physician Management Services, whether or not compensated, to any
Blues Plan except pursuant to this Agreement. Further, during the Term,
CareAdvantage agrees that it will not provide, or have any interest, whether as
an employee, officer, director, shareholder, partner, contractor, consultant or
advisor, in any person or entity that provides, Specialty Physician Management
Services to any third party payors other than the Blues Plans through this
Agreement.
8.4 Reasonableness of Restrictions. CareAdvantage acknowledges
that, during the Term of this Agreement, it will become acquainted with the
methods of performing and promoting Specialty Physician Management Services, and
each party acknowledges that it will acquire other confidential information
concerning the other party's business that could be used to the detriment of a
party. The parties further agree and acknowledge that the services being
rendered hereunder are of a special and original character that gives them
unique value, that the provisions of Section 8 are, in view of the nature of the
business of the parties, reasonable and necessary to protect the legitimate
interest of the parties, that a party's violation of any of the covenants or
agreements hereof would cause irreparable injury to the other party, that the
remedy at law for any violation or threatened violation thereof would be
inadequate and that non-offending party shall be entitled to temporary and
permanent injunctive or other equitable relief as it may deem appropriate
without the accounting of all earnings, profits, and other benefits arising from
or lost as a result of any such violation, which rights shall be cumulative and
in addition to any other rights or remedies available to such party. The parties
hereby agree that, if any such violation shall occur, the non-offending party
shall be entitled to commence an action for any such preliminary and permanent
injunctive relief and other equitable relief.
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8.5 Enforcement of Restrictions. The parties recognize that the
laws and public policies of the State of Florida and their interpretation may be
uncertain as to the validity and enforceability of certain of the provision
contained herein. It is the intention of the parties that the provisions of this
Agreement shall be enforced to the fullest extent permissible, but that the
unenforceability (or the modification to conform with such laws or public
policies) of any provision hereof shall not render unenforceable or impair the
remainder of this Agreement. Accordingly, if any provision of this Agreement
shall be deemed to be invalid or unenforceable, either in whole or in part, this
Agreement shall be deemed to delete or modify, as necessary, the offending
provision and to alter the balance of this Agreement in order to render the same
valid and enforceable to the fullest extent permissible as aforesaid.
Accordingly, if the provisions of Section 8 relating to the area of restriction,
period of time or scope, shall be deemed to exceed the maximum area, period of
time or scope which a court of competent jurisdiction would deem enforceable,
said are, period of time or scope shall for purposes of this Agreement, be
deemed to be the maximum area or period of time or scope which a court of
competent jurisdiction would deem valid and enforceable. The parties acknowledge
and agree that the covenants contained in Section 8 are a separate and essential
element of this Agreement, and that, but for the agreement of the other party
that are independent of any other provision in this Agreement. The existence of
any claim or cause of action of a party against the other party, whether
predicated on this Agreement or otherwise, shall not constitute a defense to
enforcement of such covenants. The parties hereto hereby agree that the
provisions of Section 8 of this Agreement shall survive the termination of this
Agreement and shall survive the expiration or termination of the parties'
relationship with one another, whether pursuant to this Agreement or otherwise.
Furthermore, the provisions of Section 8 shall be enforceable by the successors
and permitted assigns of the parties.
9. INDEMNITY. Subject to the terms and conditions set forth below,
each party (as appropriate, the "Indemnifying Party") agrees to indemnify and
hold harmless the other party, and such party's affiliates, and their respective
officers, directors, employees and agents (as appropriate, the "Indemnified
Party"), from and against any and all liabilities, damages, claims,
deficiencies, assessments, losses, suits, proceedings, actions, investigations,
penalties, interest, costs and expenses, including without limitation,
reasonable fees and expenses of counsel (whether suit is instituted or not and,
if instituted, whether at trial or appellate levels) (collectively, the
"Liabilities"), arising from or in connection with any breach or violation by
the Indemnifying Party of any of the covenants or agreements contained in this
Agreement. This section shall not relieve either party from any liability it may
have for its own negligence, whether by act or omission, and the negligence,
whether by act or omission, of its employees, agents, officers, and directors.
The obligations and covenants contained in this section shall survive the
expiration or termination of this Agreement.
10. NOTICE. Any notice to be given hereunder shall be given in
writing. Notice shall be deemed to be given when delivered by hand to, or sent
by overnight delivery, confirmed facsimile, or postage prepaid, registered or
certified with return receipt requested addressed to:
If to Allied:
9
<PAGE>
760 Northwest 107th Avenue
Suite 100
Miami, Florida 33172
Attn: David Russin, M.D., President
With a copy to:
Broad and Cassel
201 South Biscayne Boulevard
Suite 3000
Miami, Florida 33131
Attn: Mike Segal, P.A.
If to CareAdvantage:
485-C, Route 1 South
Iselin, New Jersey 08830
Attn: Robert J. Ailes, M.D., President
If to Parent:
485-C, Route 1 South
Iselin, New Jersey 08830
Attn: Thomas P. Riley, President
With a copy in both cases to:
Epstein Becker & Green, P.C.
250 Park Avenue
New York, New York 10177
Attn: Paul D. Squire, Esq.
Or to such other address as either party may specify to the other in writing in
the manner set forth herein. Any such notice shall be effective when delivered
in person or sent by facsimile, one business day after being sent by overnight
delivery or three business days after being sent by registered or certified
mail, except that notices for changes of address shall be effective only upon
receipt.
11. MISCELLANEOUS.
11.1 Severability. Each provision hereof is severable from this
Agreement, and if one or more provisions hereof are declared invalid, the
remaining provisions shall nevertheless remain in full force and effect. If any
provision of this Agreement is so broad, in scope or duration or otherwise as to
be unenforceable, such provision shall be interpreted to be only so broad as is
enforceable.
10
<PAGE>
11.2 No Waiver. The failure to enforce at any time any of the
provisions of this Agreement or to require at any time performance by the other
party of any of the provisions hereof shall in no way be construed to be a
waiver of such provisions or to affect the validity of this Agreement, or any
part thereof, or the right of either party thereafter to enforce each and every
such provision in accordance with the terms of this Agreement.
11.3 Entire Agreement. This Agreement contains the entire
agreement between the parties and supersedes any and all prior understandings,
agreements or correspondence between the parties, including the letter of intent
between the parties dated March 18, 1997. It may not be amended or extended in
any respect except by a writing signed by both parties hereto.
11.4 Governing Law; Venue. This Agreement has been executed and
delivered and shall be construed, governed by, and enforced and interpreted in
accordance with, the laws of the State of Florida. Venue of any actions to
enforce this Agreement shall be in a Court of competent jurisdiction in Miami,
Dade County, Florida.
11.5 Attorney's Fees and Costs. In the event of any action,
dispute, litigation or other proceeding, including appeals, with respect to this
Agreement, the prevailing party shall be entitled to recover from the
non-prevailing party all reasonable fees, costs and expenses of counsel incurred
in connection with such action, dispute, litigation or other proceeding, whether
or not litigation is instituted, and if instituted, at both trial and appellate
levels, in addition to any other relief to which the parties may be entitled.
11.6 Assignment. Neither this Agreement nor any right, remedy,
obligation or liability arising hereunder or by reason hereof may be assigned or
delegated by either party without the prior written consent of the other party;
provided, however, that Allied may assign its rights and obligations under this
Agreement to Florida Specialty Network, Ltd., a Florida limited partnership.
11.7 Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed to be an original and all of which
together shall be deemed to be one and the same instrument.
11.8 Authority/Execution. Each signatory to this Agreement
represents and warrants that he possesses all necessary capacity and authority
to act for, sign and bind the respective entity or person on whose behalf he is
signing.
11.9 Legislative Amendments. During the Term of, and
notwithstanding any other provisions of, this Agreement, the parties hereto
agree that, if any federal, state or local government or agency passes, issues,
promulgates, or modifies any law, court decision, rule, regulation, standard or
interpretation ("Legislative Amendment"), the parties will abide by said
Legislative Amendment. Further, the parties agree that the Agreement shall be
construed as if amended to comply therewith, unless the parties agree that such
Legislative Amendment requires specific modification of this Agreement, in which
case the parties shall cooperate in negotiating the required modification(s).
If, within 60 days after passage of the
11
<PAGE>
Legislative Amendment, the parties are not able to agree that such a dispute
shall be submitted immediately after the said 60 day period to arbitration
pursuant to Subsection 11.10 of this Agreement or this Agreement may be
terminated in accordance with its terms.
11.10 Arbitration. Except as otherwise provided herein, any
controversy, dispute or disagreement arising out of or relating to this
Agreement, or the breach thereof, shall be settled exclusively by arbitration,
which shall be conducted in Miami, Florida in accordance with the Expedited
Procedures of the NHLA Alternative Dispute Resolution Service Rules of Procedure
for Arbitration, and judgment on the award rendered by the arbitrator may be
entered in any court having jurisdiction thereof. The parties shall be obligated
to continue their respective obligations in accordance with the terms and
conditions of this Agreement until the dispute under this section is resolved,
unless otherwise ordered by the arbitrator.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their duly authorized representatives on the date first above written.
ALLIED HEALTH GROUP, INC.
By: /s/David Russin, M.D.
--------------------------------------
David Russin, M.D.
President/CEO
CAREADVANATAGE HEALTH SYSTEMS, INC.
By: /s/Robert J. Ailes, M.D.
--------------------------------------
Robert J. Ailes, M.D.
President
CAREADVANTAGE, INC.
By: /s/Thomas P. Riley
--------------------------------------
Thomas P. Riley
President/CEO
12
CONSULTANT AGREEMENT
Agreement made this 17th day of March between Coordinated Health Partners,
Inc., doing business as BlueCHiP, Coordinated Health Partners ("BlueCHiP") a
Rhode Island corporation incorporated and organized as a health maintenance
organization, and Care Advantage Health Systems, Inc. (CONSULTANT);
WHEREAS, BlueCHiP desires to retain the services of the Consultant to
provide certain consulting services to BlueCHiP as more specifically set forth
herein, and the Consultant desires to provide such consulting services, all
pursuant to and in accordance with the terms and conditions more specifically
set forth herein.
NOW THEREFORE, in consideration of the premises and the mutual covenants
and agreements herein contained, it is hereby agreed as follows:
1) Terms of Agreement:
This Agreement shall be effective as of the date first set forth above and
shall remain in effect for a twelve (12) month period, unless earlier
terminated by either party hereto. Either party may terminate this
Agreement without cause upon sixty (60) days prior written notice. This
Agreement may be terminated immediately by BlueCHiP for cause. The
following events constitute termination for cause:
a) Whenever the Consultant shall cease to be licensed, certified, or
otherwise qualified under any applicable laws of the State of Rhode
Island;
b) The material breach by the Consultant of any of the terms or
conditions of this Agreement; or
c) The death of the Consultant.
2) Duties:
Consultant's duties and activities may include, but not be limited to the
following:
a) Review prospectively, concurrently, and retrospectively, requests for
covered services for purposes of determining medical appropriateness;
b) Where requested by the Medical Director or his/her designee,
communicate with BlueCHiP contracted and other providers regarding
such determinations;
c) Assist in the education and training of claims administration and
claims adjudication personnel of BlueCHiP;
d) Assist in the development, implementation, and evaluation of ongoing
effectiveness of BlueCHiP medical and administrative policies; and
Quality Assessment and Improvement activities; and,
e) Perform those duties set forth in Attachment B, attached hereto and
incorporated herein by reference.
Those individuals who shall perform services under this Agreement on behalf
of Consultant shall be those persons named in Attachment C, attached hereto
and incorporated herein by reference. In the event that any of those
individuals named in Attachment C will no longer provide services under
this Agreement, the parties agree to amend Attachment C to reflect those
individuals who will perform services under this Agreement.
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CONSULTANT AGREEMENT Page 1 of 7
<PAGE>
3) Consulting Activities:
The Consultant's duties and activities, as set forth in Section 2 hereof,
shall be subject to the following terms and conditions:
a) All Determinations, opinions and/or guidelines made or prepared by
Consultant in the course of such Consultant's engagement by BlueCHiP
shall be in writing and shall contain appropriate reasons for same and
shall be signed by the Consultant.
b) The services of the Consultant will be on an "as needed" basis, as
determined by BlueCHiP from time to time. BlueCHiP maintain the
exclusive right to make all final determinations regarding the medical
necessity of treatment or services, the reimbursement of such
treatment or services, and whether a review can be completed in a
designated timeframe.
c) The Consultant shall at all times maintain the confidentiality of a
BlueCHiP enrollee's confidential health care information. The
Consultant agrees not to disclose an BlueCHiP enrollee's confidential
health care information to any individual or entity and for any
purposes other than those permitted under applicable Federal and State
Laws and Regulations, including, without limitation, the
Confidentiality of Health Care Information Act, RI General Laws SS
5-37.3-1 et seq. (1995).
d) When performing utilization review, the Consultant shall abide by any
BlueCHiP policies established in connection with the Health Care
Services - Utilization Review Act, RI General Laws SS 23-17.12-1 et
seq. (1995), and any other obligations imposed on an individual
conducting utilization review under such Act.
e) The Consultant shall at all times maintain the confidentiality of
information obtained by the Consultant in the fulfillment of
Consultant's administrative responsibilities, including information
obtained by Consultant in the course of peer review programs,
utilization review and quality assessment and improvement programs. In
doing so, Consultant shall be bound by provision of applicable law as
well as BlueCHiP Pollicies and Procedures established from time to
time.
f) Consultant shall provide BlueCHiP with the identity and qualifications
of all physician reviewers used by Consultant in the course of meeting
its obligations under this consulting agreement. Consultant shall use
only physicians that are Board Certified in the discipline of review,
if Board Certification exists for the discipline.
g) All services rendered by Consultant are under the direction of the
BlueCHiP Medical Director or designee.
4) Compensation:
For services provided by the Consultant under this Agreement, BlueCHiP
shall pay the Consultant in accordance with the Fee Schedule attached
hereto as Attachment A and incorporated herein by reference.
5) Restrictive Covenants:
a) Consultant shall comply with all conflict of interest policies of
BlueCHiP in force from time to time, shall periodically complete a
disclosure form as requested by Coordinated Health Partners, Inc., and
shall disclose all potential conflicts as they may arise in the course
of the Consultant's consulting activity. During the term of this
Agreement, the Consultant covenants and agrees not to engage in any
activities which might interfere with the Consultant's ability to
perform the Consultant's duties and activities under this Agreement.
With the exception of Blue Cross & Blue Shield of Rhode Island, the
Consultant shall not accept similar engagement with or serve in a
similar capacity with
================================================================================
CONSULTANT AGREEMENT Page 2 of 7
<PAGE>
any other organization which is at such time conducting business
within the State of Rhode island and engaged in a business of a like
or similar matter to the activities or business now or hereafter
conducted by BlueCHiP without the written permission of BlueCHiP.
b) During the term of the Agreement and thereafter, the Consultant
covenants and agrees not to duplicate, reproduce, or misappropriate
any information confidential or proprietary to BlueCHiP, including
without limitation, any and all information, manuals, know-how, uses,
capabilities, studies, analyses, communications, reports, data and all
other documents, with respect to BlueCHiP operations and activities
(the "Confidential Information") for the Consultant's own benefit, and
shall keep confidential and shall not disclose Confidential
Information to any third party without the prior written consent of
BlueCHiP, which consent may be withheld in BlueCHiP's sole and
absolute discretion. Nothing shall prevent the Consultant from
transferring such Confidential Information to any third party pursuant
to the requirements of such consultant's duties and activities and in
accordance with the terms of this Agreement or from disclosing such
Confidential Information when the Consultant is required to do so by
law.
c) All documents, of any kind or nature, developed by the Consultant as
part of the Consultant's activities and duties under this Agreement
(the Proprietary Documents") shall remain the exclusive property of
BlueCHiP. The Consultant shall not use, employ, rely upon, copy from
or otherwise incorporate in other documents or in other form such
Proprietary Documents in the State of Rhode Island at any time or for
any purpose, including, without limitations, when performing services
for, or for the benefit of, any insurer, health maintenance
organization, or third party payor. The Consultant shall not use such
Proprietary Documents in the Sate of Rhode Island as the basis to
develop forms of any kind for utilization review or related
activities. Upon termination of this Agreement, the Consultant shall
return any Proprietary Documents in the Consultant's possession to
BlueCHiP.
d) The Consultant shall comply with and be subject to BlueCHiP
Operational Procedures in effect from time to time. The Operational
Procedures shall be those governing the internal administration and
operation of BlueCHiP. The Consultant shall comply with any BlueCHiP
policies, procedures or committee bylaws, adopted from time to time,
necessary for BlueCHiP to obtain and maintain accreditation from an
accreditation organization, including, but not limited to, the
National Committee for Quality Assurance.
e) The parties hereto are independent contractors and the Consultant
shall not be construed to be the agent, employee, or representative of
BlueCHiP. Neither party hereto may bind the other party in any
respect, except as set forth in this Agreement.
6) Indemnification:
a) BlueCHiP shall indemnify and hold consultant harmless from and against
any and all loss, cost, and expense (including reasonable attorneys'
fees and costs) necessary for the defense of Consultant in connection
with any claim, demand, suit, action, cause of action or proceeding by
a third party arising as a result of the performance of the
Consultant's duties under this Agreement from and after the date of
execution hereof, provided that in connection with the performance of
any duty giving rise to such claim, demand, suit, action, cause of
action or proceeding, the Consultant acted (i.), in good faith and
(ii.)
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CONSULTANT AGREEMENT Page 3 of 7
<PAGE>
in a manner not opposed to the interests of BlueCHiP, and (iii.)
non-negligently and without willful or intentional misconduct.
b) Consultant shall indemnify and hold BlueCHiP harmless from and against
any and all loss, cost, and expense (including reasonable attorneys'
fees and costs) necessary for the defense of BlueCHiP in connection
with any claim, demand, suit, action, cause of action or proceeding by
a third party arising as a result of the performance of the BlueCHiP
duties under this Agreement from and after the date of execution
hereof, provided that in connection with the performance of any duty
giving rise to such claim, demand, suit, action, cause of action or
proceeding, BlueCHiP acted (i.) in good faith and (ii.) in a manner
not opposed to the interests of the consultant, and (iii.)
non-negligently and without willful or intentional misconduct.
Notwithstanding anything herein to the contrary, this section is not
intended to obligate Consultant to compensate BlueCHiP for the costs
of medical services that BlueCHiP is contractually obligated to
provide.
7) Miscellaneous:
This Agreement shall be governed, construed, and interpreted under the laws
of the State of Rhode Island. Section headings are for reference purposes
only. This Agreement shall be binding upon and inure to the benefit of
BlueCHiP, its successors and assigns, and to the Consultant, his/her heirs,
administrators, successors and assigns. This Agreement constitutes the
entire understanding of the parties hereto and supersedes all prior
representations and understandings whether oral or written. The invalidity
or unenforceability of any provision hereof shall in no way affect the
validity and enforceability of any other provisions. The waiver by either
party of a breach or violation of any provision hereof shall not operate or
be construed as a waiver of any other breach or violation hereof. Neither
this Agreement nor any interest herein shall be assigned by the Consultant
without the express prior written consent of BlueCHiP, which consent my be
withheld in BlueCHiP's sole and absolute discretion provided, however if
Consultant desires to assign this agreement to its parent, a subsidiary, or
an affiliate, BlueCHiP shall not unreasonably withhold its consent to such
assignment.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day first
written above.
COORDINATED HEALTH PARTNERS, INC. CONSULTANT
BlueCHiP
By:___________________________ By:_________________________________
For: CareAdvantage, Inc.
Title: Tax ID#:
Date: Date:
================================================================================
CONSULTANT AGREEMENT Page 4 of 7
<PAGE>
ATTACHMENT A
COMPENSATION
Exhibit A/FEE SCHEDULE
CareAdvantage, Inc.
One Empire Plaza
Providence, RI 02903
On the twenty-first (21) day of April 1997, and on the 21st day of each month
thereafter during the term of this Agreement, BlueCHiP shall pay Consultant for
its services under this Agreement forty-eight cents ($0.48) for each BlueCHiP
member on such date. In addition, Consultant shall be compensated for services
provided to BlueCHiP from March 17, 1997 through April 18, 1997 on an hourly
basis at the rate of one hundred dollars ($100) per hour, which compensation
shall be paid by BlueCHiP within thirty (30) days of its receipt of an invoice
for such services.
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CONSULTANT AGREEMENT Page 5 of 7
<PAGE>
ATTACHMENT B
DUTIES
CareAdvantage, Inc.
One Empire Plaza
Providence, RI 02903
o Participate as a member or guest of any internal or external committee
specified by BlueCHiP, in accordance with the duties, functions, and
procedures of those committees as defined in BlueCHiP Policies &
Procedures.
o Utilization management case reviews, including communication with providers
as necessary to gather information.
o Policy and Procedure Reviews
o Utilization management guidelines: formulations and/or review
o Formulation and/or review of clinical care guidelines
o Other duties as from time to time arise and to which Consultant agrees to
perform. All duties shall be in a field within the scope of Consultant's
license.
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CONSULTANT AGREEMENT Page 6 of 7
<PAGE>
ATTACHMENT C
CAREADVANTAGE, INC. PHYSICIAN CONSULTANTS
Marylou Buyse, M.D.
Robert Coit, M.D.
Stephen Deutsch, M.D.
Gary Friedman, M.D.
Rosario Noto, M.D.
+ Other reviews may be added with the approval of the BlueCHiP Medical
Director without amendment.
================================================================================
CONSULTANT AGREEMENT Page 7 of 7
Copies to: R.J. Pures
S.S. Connor
D. Celestini
W. Frantel
G. Byrnes
C. Czar
J. Sweeney
J. Monaghan
FYI: K. Giesler
As of March 1, 1997
CareAdvantage, Inc.
Metropolitan Corporate Plaza
485-C Route 1 South
Iselin, New Jersey 08830-3037
Allied Health Group, Inc.
3106 Commerce Parkway
Miramar, Florida 33025
Re: Administrative Service Agreement
Ladies and Gentlemen:
Reference is made to the Administrative Service Agreement dated as of
January 2, 1997 (the "Agreement") by and between Medigroup of New Jersey, Inc.,
d/b/a HMO Blue ("HMO Blue"), and Allied Health Group, Inc. ("Allied").
Capitalized terms used and not otherwise herein defined have the meanings
ascribed to such terms in the Agreement.
This will confirm our understanding that anything to the contrary
contained in the Agreement notwithstanding, each monthly Capitation Payment will
be paid as follows:
(i.) the fifteen percent (15%) of each monthly Capitation Payment
described in Section 5.2(1)(a) of the Agreement as subject to
retention by Allied (each such amount, a "Fee") will be paid as
described in clause (i) of the next following paragraph; and
(ii.) the remainder of each monthly Capitation Payment will be placed in
the Capitated Pool as contemplated by the Agreement or as otherwise
agreed by HMO Blue and Allied.
In addition, in view of the services rendered by CareAdvantage, Inc. ("CAI") in
connection with the negotiation and implementation of the Agreement and the
advisory and other services to be rendered in connection with the Agreement as
described in Appendix A hereto, this will confirm
<PAGE>
our understanding that, subject to the penultimate paragraph of this letter,
during the term of the Agreement:
(i.) HMO Blue will pay each Fee to CAI;
(ii.) of each Fee, CAI will retain (x) prior to the first full month
during which Participants include at least 100,000 (Administrative
Services Only" members of HMO Blue (the "Step-Up Month"). an amount
equal to two-fifteenths (2/15) of the Fee, and (y) during and after
the Step-Up Month, an amount equal to three-fifteenths (3/15) of the
Fee (in each case, the "CAI Retention Amount");
(iii.) in addition to the CAI Retention Amount, CAI will retain from each
Fee an amount equal to three-thirtieths (3/10) of the Fee (the "CAI
Risk Amount"), such amount to be applied, if and to the extent
necessary, to satisfy CAI's obligations under clause (vi) of this
paragraph;
(iv.) all amounts paid to CAI under clause (i) of this paragraph, other
than the CAI Retention Amount and the CAI Risk Amount, will be paid
immediately by CAI to Allied;
(v.) anything to the contrary set forth in Section 5.2(1)(a) of the
Agreement notwithstanding. Allied will be entitled to retain as
compensation each month an amount equal to the applicable Fee less
the CAI Retention Amount and the CAI Risk Amount; and
(vi.) in the event that Allied is required to make any payment to HMO Blue
pursuant to Section 5.2(1)(b)(iii) of the agreement, CAI will
immediately pay to Allied one-half (1/2) of any amount so paid by
Allied, but not more than the CAI Risk Amount for the applicable
period.
By executing this letter, Allied agrees to accept as payment from HMO Blue
under the Agreement any and all amounts paid to Allied by CAI as described in
clause (iv) of the preceding paragraph, it being understood that, except to the
extent that Allied actually receives funds from CAI pursuant to this letter,
nothing herein contained will be deemed to affect in any way the respective
obligations of HMO Blue and Allied under the Agreement. HMO Blue fully and
unconditionally guarantees the obligations of CAI hereunder, including, without
limitation, the obligations specified in the immediately preceding paragraph.
The agreement represented by this letter is terminable:
(i.) by HMO Blue at any time, (A) in the event that CAI fails in any
material respect to perform any of its obligations hereunder, (B) in
the event that, in HMO Blue's judgement, reasonable grounds for
insecurity exist with respect to the performance by CAI of any of
its obligations hereunder or (C) pursuant to mutual agreement with
CAI, in each case, upon notice to Allied and CAI; and
<PAGE>
(ii.) by Allied at any time, in the event that CAI fails in any material
respect to perform any of its obligations hereunder, upon notice to
CAI and HMO Blue; provided that (x) the obligations of the parties
arising prior to the effective date of termination will survive any
such termination. (y) from and after the effective date of any such
termination, this letter will be of no force or effect for purposes
of determining the respective rights and obligations of Allied and
HMO Blue arising thereafter under the Agreement and (z) in the event
that the agreement represented by this letter is terminated by
Allied, then Allied will pay to CAI (A) Immediately out of each Fee
received by Allied under the Agreement, an amount that would, if
this letter agreement were still in effect, be equal to the CAI
Retention Amount for the applicable month and (B) immediately
following any determination made pursuant to Section 5.2(1)(b)(iii)
of the Agreement (regarding payments that may be required to be made
by Allied to HMO Blue or by HMO Blue to Allied) one-half (1/2) of
the amount, if any, by which three percent (3%) of aggregate
Capitation Payments during the applicable Calculation Period exceeds
the amount, if any, then required to be paid by Allied to HMO Blue
pursuant to said Section 5.2(1)(b)(iii).
If the foregoing accurately expresses our understanding, please so
indicate by signing the enclosed copy of this letter and returning it to the
undersigned.
Very truly yours,
MEDIGROUP OF NEW JERSEY, INC.
d/b/a HMO Blue
By: /s/John A. Sweeney
--------------------------------
Name: John A. Sweeney
Title: Treasurer
Accepted and agreed:
CAREADVANTAGE, INC.
By: /s/Thomas P. Riley
--------------------------------
Name: Thomas P. Riley
Title: President and CEO
ALLIED HEALTH GROUP, INC.
By: /s/Lawrence Schimmel, M.D.
--------------------------------
Name: Lawrence Schimmel, M.D.
Title: Principal
<PAGE>
APPENDIX A
CAI will provide to Allied and HMO Blue, at the request of Allied and at such
reasonable times and places as shall be mutually acceptable to CAI and Allied or
to CAI and HMO Blue, as the case may be, advice and consultation with respect to
the following:
(i) methods of inpatient care management to
enhance inpatient savings and to develop care
management protocols:
(ii) the adoption of efficient inpatient care
management practices on a specialty specific basis;
(iii) the development of specialty advisory
committees and/or steering committees by Allied and
HMO Blue;
(iv) disease management in selected specialties,
including but not limited to oncology, asthma and
selected cardio vascular diseases; and
(v) case management programs to broaden the
number of members on a specialty specific basis.
<PAGE>
MEDIGROUP OF NEW JERSEY, INC.
Three Penn Plaza East
Newark, New Jersey 07105
June 13, 1997
CareAdvantage, Inc.
Metropolitan Corporate Plaza
485-C Route 1 South
Iselin, New Jersey 08830-3037
Re: Administrative Service Agreement
Ladies and Gentlemen:
Reference is made to the Administrative Service Agreement dated as of
January 2, 1997 by and between Medigroup of New Jersey, Inc., d/b/a HMO Blue
("HMO Blue"), and Allied Health Group, Inc. ("Allied"), the related letter
agreement dated as of March 1, 1997 by and among HMO Blue, Allied and
CareAdvantage, Inc. ("CAI") (the "Letter Agreement") and the related letter
agreement dated as of March 1, 1997 by and between HMO Blue and CAI (the
"HMO/CAI Letter").
The HMO/CAI Letter provides, pursuant to clause (i)(C) of the penultimate
paragraph of the Letter Agreement, that HMO Blue may, in its sole discretion,
terminate the Letter of Agreement in the event that Blue Cross and Blue Shield
of New Jersey, Inc. ("BCBSNJ"), CAI and the other parties to that certain
Services Agreement dated as of February 22, 1996 (the "Services Agreement") have
not on or prior to April 1, 1997, entered into an amended and restated Services
Agreement satisfactory to BCBSNJ in its sole discretion. The parties hereto
hereby further acknowledge that CAI, BCBSNJ and the other parties thereto are
only today entering into an amended and restated Services Agreement.
Based upon the foregoing and for other good and valuable consideration,
this letter confirms our understanding and agreement that HMO Blue may continue
to have the right, in its sole discretion, to terminate the Letter Agreement at
any time, the parties' entry today into an amended and restated Services
Agreement notwithstanding.
<PAGE>
CareAdvantage, Inc.
June 13, 1997
Page 2
If the foregoing accurately expresses our understanding, please so
indicate by signing the enclosed copy of this letter and returning it to the
undersigned.
Very truly yours,
MEDIGROUP OF NEW JERSEY, INC.
d/b/a HMO BLUE
By: /s/John A. Sweeney
--------------------------------
Name: John A. Sweeney
Title: Treasurer
Accepted and agreed:
CAREADVANTAGE, INC.
By: /s/Richard W. Freeman, M.D.
--------------------------------
Name: Richard W. Freeman
Title: Senior Vice President
<PAGE>
MEDIGROUP OF NEW JERSEY, INC.
Three Penn Plaza East
Newark, New Jersey 07105
As of March 1, 1997
CareAdvantage, Inc.
Metropolitan Corporate Plaza
485-C Route 1 South
Iselin, New Jersey 08830-3037
Re: Administrative Service Agreement
Ladies and Gentlemen:
Reference is made to the Administrative Service Agreement dated as of
January 2, 1997 by and between Medigroup of New Jersey, Inc., d/b/a HMO Blue
("HMO Blue"), and Allied Health Group, Inc. ("Allied"), and the letter agreement
dated as of March 1, 1997 by and among HMO Blue, Allied and CareAdvantage, Inc.
("CAI") relating thereto (the "Letter Agreement").
This confirms our understanding and agreement, pursuant to clause (i)(C)
of the penultimate paragraph of the Letter Agreement, that HMO Blue may, in its
sole discretion, terminate the Letter Agreement in the event that Blue Cross and
Blue Shield of New Jersey, Inc. ("BCBSNJ"), CAI and the other parties to that
certain Services Agreement dated as of February 22, 1996 (the "Services
Agreement") have not on or prior to April 1, 1997, entered into an amended and
restated Services Agreement satisfactory to BCBSNJ in its sole discretion.
If the foregoing accurately expresses our understanding, please so
indicate by signing the enclosed copy of this letter and returning it to the
undersigned.
Very truly yours,
MEDIGROUP OF NEW JERSEY, INC.
d/b/a HMO BLUE
By: /s/John A. Sweeney
--------------------------------
Name: John A. Sweeney
Title: Treasurer
Accepted and agreed:
CAREADVANTAGE, INC.
By: /s/Thomas P. Riley
--------------------------------
Name: Thomas P. Riley
Title: President/Chief Executive Officer
CREDIT AGREEMENT
by and among
SUMMIT BANK
and
CAREADVANTAGE, INC.
as Borrower
and
BLUE CROSS AND BLUE SHIELD OF NEW JERSEY, INC.,
as Guarantor
June 13, 1997
<PAGE>
CREDIT AGREEMENT
THIS CREDIT AGREEMENT is made as of June 13, 1997 by and among Summit Bank,
a banking institution of the State of New Jersey (the "Bank"), CareAdvantage,
Inc., a Delaware corporation (the "Borrower") and Blue Cross and Blue Shield of
New Jersey, Inc., a New Jersey health service corporation (the "Guarantor").
W I T N E S S E T H:
WHEREAS, the Borrower has requested the Bank to extend certain credit and
make certain loans to the Borrower in an aggregate amount not to exceed
$3,000,000; and
WHEREAS, the Guarantor presently owns approximately 50% of the issued and
outstanding capital stock of the Borrower; and
WHEREAS, the Guarantor will derive economic and other financial benefit
from the extension of credit described herein; and
WHEREAS, the Bank is willing to extend such credit and make such loans to
the Borrower upon the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and mutual agreements
herein contained, the parties hereto hereby agree as follows:
I. DEFINITIONS
1.1 Defined Terms. As used in this Agreement, the following words and terms
shall have the following meanings:
"Advance" shall have the meaning ascribed to such term in Section 2.2
hereof.
"Agreement" shall mean this Credit Agreement together with any and all
exhibits, amendments or supplements hereto.
"Applicable Margin" shall mean (i) with respect to the Revolving Loan, 45
basis points and (ii) with respect to the Term Loan, 50 basis points.
"Available Commitment" shall mean, at any time, an amount equal to the
excess, if any, of (i) the lesser of the Commitment or the Borrowing Base at
such time, over (ii) the aggregate principal amount of all Advances then
outstanding.
"Bank" shall mean Summit Bank, a banking institution of the State of New
Jersey, and its successors and assigns.
<PAGE>
"Bank Costs" shall mean all filing, recording, publication and search fees
incurred in connection with and relating to the Loans paid by the Bank; all
reasonable out-of-pocket costs incurred and sums expended by the Bank, with or
without suit, to correct any default, to enforce any right or remedy of the
Bank, or in connection with any other provision of any Loan Document; all
reasonable out-of-pocket costs of suit incurred by the Bank in enforcing or
defending this Agreement or any other Loan Document or any portion thereof; all
reasonable out-of-pocket costs and expenses including reasonable attorneys' fees
and expenses incurred by the Bank in preparing, reviewing, enforcing, amending,
modifying, administering, defending or otherwise concerning this Agreement or
any other Loan Document or any portion hereof or thereof; and whether or not
suit is brought, all out-of-pocket costs of arbitration and insolvency
proceedings.
"Base LIBO Rate" shall have the meaning ascribed to such term in Section
2.4(e) hereof.
"Base Rate" shall mean the rate of interest announced from time to time by
the Bank as its "base rate" or "base lending rate". This rate of interest is
determined from time to time by the Bank as a means of pricing some loans to its
customers and is neither tied to any external rate of interest or index nor does
it necessarily reflect the lowest rate of interest actually charged by the Bank
to any particular class or category of customers of the Bank.
"Base Rate Loan" shall mean a Loan bearing interest at the Base Rate.
"Borrower" shall mean CareAdvantage, Inc., a Delaware corporation, and its
successors and assigns.
"Borrowing Base" shall mean, at any time, an amount equal to ninety-one
percent (91%) of the aggregate Fair Market Value of the Government Securities at
such time.
"Business Day" shall mean any day other than a Saturday, Sunday or other
day on which state or federally chartered banks in the State of New Jersey are
authorized to close.
"Commitment" shall mean $1,500,000.
"Custodian" shall mean Chase Manhattan Bank, and its successors and
assigns.
"Custody Agreement" shall mean that certain Custody and Bailment Agreement
dated the date hereof among the Bank, the
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<PAGE>
Guarantor and the Custodian and any amendments, modifications or supplements
thereof.
"Default" shall mean any of the events specified in Article VII hereof
which, with the passage of time or giving of notice or both, would constitute an
Event of Default.
"Effective Date" shall mean the date upon which all of the conditions
precedent set forth in Section 4.1 hereof shall have been satisfied; provided,
however, that such date shall be no later than ten days from the date hereof.
"Event of Default" shall mean any of the events specified in Article VII
hereof, provided that any requirement for notice or lapse of time or any other
condition has been satisfied.
"Fair Market Value" of any Government Security, as of any date, shall mean
the mean between the closing bid and asked price for such Government Security,
as reported by any established reporting service, on the trading day immediately
preceding such date.
"Fixed LIBO Rate" shall have the meaning ascribed to such term in Section
2.4(e) hereof.
"Government Security(ies)" shall mean obligations of, or unconditionally
guaranteed by, the United States of America, or any instrumentality or agency
thereof, including FNMA Certificates of the type listed on Schedule I hereto;
provided the same are (i) owned by the Guarantor, free and clear of all liens,
claims, encumbrances and rights of others (other than the Bank), (ii) pledged to
the Bank under the terms of the Pledge Agreement and constitute the "Pledged
Collateral" described therein, (iii) held by the Bank or the Custodian on behalf
of the Bank under the terms of the Custody Agreement and (iv) freely tradeable
on any established trading market.
"Guarantor" shall mean Blue Cross and Blue Shield of New Jersey, Inc., a
New Jersey health service corporation, and its successors and assigns.
"Guaranty Agreement" shall mean that certain Guaranty Agreement dated the
date hereof by the Guarantor in favor of the Bank and any amendments,
modifications or supplements thereof.
"Interest Period" shall have the meaning ascribed to such term in Section
2.4(f) hereof.
"LIBO Rate" shall have the meaning ascribed to such term in Section 2.4(e)
hereof.
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<PAGE>
"LIBO Rate Loan" shall mean a Loan bearing interest at the LIBO Rate.
"Loans" shall mean the Revolving Loan and the Term Loan, individually and
collectively.
"Loan Documents" shall mean all agreements, instruments, certificates and
documents evidencing or relating to the Obligations arising under this
Agreement, including without limitation, this Agreement, the Notes, the Pledge
Agreement, the Guaranty Agreement and the Custody Agreement.
"Maturity Date" shall mean (i) with respect to the Revolving Loan, the
Revolving Credit Maturity Date and (ii) with respect to the Term Loan, the Term
Loan Maturity Date.
"Notes" shall mean the Revolving Credit Note and the Term Note,
individually and collectively.
"Obligations" shall mean all loans, advances, extensions of credit, debts,
liabilities, obligations, payments, guarantees, covenants and duties owing by
the Borrower to the Bank of any kind and description arising under this
Agreement or any Note, whether direct or indirect, voluntary or involuntary,
absolute or contingent, due or to become due, now existing or hereafter incurred
or created and further including all Bank Costs.
"Person" shall mean any individual, corporation, partnership, association,
joint stock company, trust, unincorporated organization, joint venture, court or
government or political subdivision or agency thereof.
"Pledge Agreement" shall mean that certain Pledge Agreement dated the date
hereof between the Guarantor and the Bank.
"Revolving Loan" shall mean, as at any date, the aggregate Advances then
outstanding.
"Revolving Credit Maturity Date" shall mean the date which is 364 days from
the Effective Date.
"Revolving Credit Note" shall have the meaning ascribed to such term in
Section 2.3 hereof.
"Term Advances" shall have the meaning ascribed to such term in Section 2.1
hereof.
"Term Loan" shall have the meaning ascribed to such term in Section 2.1
hereof.
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<PAGE>
"Term Loan Drawdown Period" shall mean the nine month period commencing on
the Effective Date.
"Term Loan Maturity Date" shall mean June 30, 2000.
"Term Note" shall have the meaning ascribed to such term in Section 2.1
hereof.
II. TERM LOAN AND REVOLVING LOAN
2.1 Term Loan. From time to time, during the Term Loan Drawdown Period, in
the manner hereinafter set forth, the Borrower may borrow from the Bank, and,
upon the request of the Borrower and upon the terms and conditions contained
herein, the Bank shall lend to the Borrower a sum or sums ("Term Advances")
which will not exceed the aggregate sum of One Million Five Hundred Thousand
Dollars ($1,500,000) (the "Term Loan"). The indebtedness of the Borrower to the
Bank resulting from all Term Advances made from time to time hereunder shall be
evidenced by a term note (the "Term Note"), the form of which is attached hereto
as Exhibit A, made payable to the Bank, dated as of the Effective Date, signed
by the Borrower and delivered to the Bank. All Term Advances made by the Bank to
the Borrower shall be noted by the Bank on any schedule or other record
designated by the Bank for such purpose, and the Bank is authorized to make such
notations which shall be prima facia evidence of the principal amount
outstanding thereunder at any time; provided, however, that any failure to make
such a notation (or any errors in notation) shall not limit or otherwise affect
the obligation of the Borrower hereunder or under the Term Note, which is and
shall remain absolute and unconditional. All amounts outstanding under the Term
Note shall be due and payable on the Term Loan Maturity Date.
2.2 Revolving Loan. From time to time, during the period from the Effective
Date until the Revolving Credit Maturity Date, in the manner hereinafter set
forth, the Borrower may borrow from the Bank, and, upon the request of the
Borrower and upon the terms and conditions contained herein, the Bank shall lend
to the Borrower a sum or sums ("Advances") which will not exceed the Available
Commitment at such time.
2.3 Revolving Credit Note. The indebtedness of the Borrower to the Bank
resulting from all Advances made from time to time hereunder shall be evidenced
by a revolving credit note (the "Revolving Credit Note"), the form of which is
attached hereto as Exhibit B, made payable to the Bank, dated as of the
Effective Date, signed by the Borrower and delivered to the Bank. All Advances
made by the Bank to the Borrower shall be noted by the Bank on any schedule or
other record designated by the Bank for such purpose, and the Bank is authorized
to make such notations
-5-
<PAGE>
which shall be prima facia evidence of the principal amount outstanding
thereunder at any time; provided, however, that any failure to make such a
notation (or any errors in notation) shall not limit or otherwise affect the
obligation of the Borrower hereunder or under the Revolving Credit Note, which
is and shall remain absolute and unconditional. All amounts outstanding under
the Revolving Credit Note shall be due and payable on the Revolving Credit
Maturity Date.
2.4 Payment of Interest; Interest Rate Options.
(a) Each Note shall bear interest in the manner hereinafter provided
(computed on the basis of the actual number of days elapsed in a year of 360
days) on the principal amount thereof remaining unpaid from time to time.
Interest shall be payable monthly in arrears on the first day of each month,
commencing on the first day of the second month following the date of each Note
and continuing on the first day of each month thereafter until each Note shall
be paid in full; provided, however, that with respect to LIBO Rate Loans,
interest shall also be payable on the last day of the Interest Period applicable
thereto. Notwithstanding the foregoing, if any date upon which interest shall be
paid shall not be a Business Day, then such payment shall be made on (and
interest shall accrue until) the next succeeding Business Day, unless, with
respect to LIBO Rate Loans, the next such succeeding Business Day shall fall in
the next calendar month, in which case such payment shall be made on the next
preceding Business Day.
(b) All Loans hereunder shall be classified by "class" and "type." The
class of Loan refers to whether such Loan is a Revolving Loan or Term Loan, and
the type of Loan refers to whether such Loan is a LIBO Rate Loan or Base Rate
Loan.
(c) Commencing on the first day of the second month following the Effective
Date, and continuing on the first day of each month thereafter, the Borrower
shall repay the Term Loan by paying to the Bank an amount equal to the then
outstanding principal balance thereof, divided by the number of months then
remaining until the Term Loan Maturity Date. No portion of the Term Loan which
has been repaid may be reborrowed.
(d) Except as provided in subsection (e) below, each Note shall bear
interest from the date thereof on the outstanding daily principal balance
thereunder at a fluctuating rate per annum equal to the Base Rate. Each change
in the Base Rate shall be effective, automatically and without notice as of the
opening of business on the day on which such change shall be announced and be
effective.
(e) Provided no Default or Event of Default shall then
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<PAGE>
exist, the Borrower may, in accordance with the terms and conditions set forth
herein, elect to have all or any portion of the outstanding principal balance of
each Note bear interest for any Interest Period at a rate per annum (the "LIBO
Rate") equal to the Applicable Margin plus the Base LIBO Rate applicable to such
Interest Period. The "Base LIBO Rate" applicable to a particular Interest Period
shall mean a rate per annum equal to the product arrived at by multiplying the
Fixed LIBO Rate applicable to such Interest Period by a fraction (expressed as a
decimal), the numerator of which shall be the number one (1.0) and the
denominator of which shall be the number one (1.0) minus the aggregate reserve
percentages (expressed as a decimal) from time to time established by the Board
of Governors of the Federal Reserve System of the United States and any other
banking authority to which the Bank is now or hereafter subject, including, but
not limited to any reserve on "Eurocurrency Liabilities" as defined in
Regulation D (or any successor provision) of the Board of Governors of the
Federal Reserve System of the United States at the ratios provided in such
Regulation from time to time, it being agreed that any portion of any Note
bearing interest at the LIBO Rate shall be deemed to constitute Eurocurrency
Liabilities, as defined by such Regulation, and it being further agreed that
such Eurocurrency Liabilities shall be deemed to be subject to such reserve
requirements without benefit of or credit for prorations, exceptions or offsets
that may be available to the Bank from time to time under such Regulation and
irrespective of whether such Bank actually maintains all or any portion of such
reserve. The "Fixed LIBO Rate" applicable to a particular Interest Period shall
mean a rate per annum equal to the rate of interest at which U.S. dollar
deposits in an amount approximately equal to the portion of the Note which will
bear interest at a particular LIBO Rate during such Interest Period, and with
maturities comparable to the last day of such Interest Period, are offered in
immediately available funds in the London Interbank Market by leading banks in
the Eurodollar Market at 11:00 a.m., London time, three Business Days prior to
the commencement of such Interest Period. Each determination of the LIBO Rate,
the Base LIBO Rate and the Fixed LIBO Rate applicable to a particular Interest
Period shall be made by the Bank and shall be conclusive and binding upon the
Borrower absent manifest error.
(f) As used herein, "Interest Period" shall mean one-month, three-months or
six-months, as designated by the Borrower, with respect to Loans which bear
interest at the LIBO Rate. For purposes of the foregoing, the period of time
commencing on any day of any month and continuing until the same date of the
immediately following month shall be deemed a period of one month. No Interest
Period shall extend beyond the Maturity Date.
(g) Unless the Borrower shall have requested a further
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<PAGE>
LIBO Rate Loan in accordance with the terms hereof, each LIBO Rate Loan shall
automatically convert to a Base Rate Loan on and as of the last day of the
Interest Period applicable thereto.
(h) Notwithstanding the foregoing, at no time shall either Note bear
interest at more than ten interest rates.
(i) Overdue principal and, to the extent permitted by law, overdue interest
in respect of each Loan shall bear interest at a rate per annum equal to the
Base Rate plus three percent (3%) per annum and shall be payable on demand.
2.5 Prepayments. (a) The Borrower shall have the right to prepay the
principal amount of each Note, in whole or in part, at one time or from time to
time. Except as described in Section 3.2 with respect to LIBO Rate Loans, there
shall be no premium or penalty as the result of such prepayment. Any prepayment
of the Revolving Credit Note shall not permanently reduce the amount which may
be borrowed pursuant to Section 2.2 hereof and the Borrower may borrow, prepay
and reborrow in the manner provided herein. Any prepayment of the Term Note may
not be reborrowed. Each prepayment shall be made in immediately available funds
and shall be made (i) in the case of Base Rate Loans, upon one Business Day's
prior notice and (ii) in the case of LIBO Rate Loans, upon three Business Day's
prior notice, in each case, accompanied by accrued interest to the date of such
prepayment (and, in the case of LIBO Rate Loans, the applicable payments
required under Section 3.2 hereof).
(b) If at any time the outstanding principal amount of the Loans hereunder
exceeds the Borrowing Base at such time, the Borrower shall, within five days of
its receipt of notice thereof, prepay such excess amount, together with accrued
interest thereon (and all other amounts payable under Section 3.2 hereof), so
that, after giving effect thereto, the outstanding principal amount of Loans
hereunder does not exceed the Borrowing Base; provided, however, that at no time
may the aggregate principal amount of Advances hereunder exceed the Available
Commitment.
2.6 Use of Proceeds. All Advances under the Revolving Loan shall be used
for working capital and general corporate purposes for the Borrower and its
subsidiaries, and all Term Advances under the Term Loan shall be used for
capital expenditures and to refinance existing leases for the Borrower and its
subsidiaries.
2.7 Disbursement Procedure for Advances. All requests for Advances, Term
Advances or Loans shall be in writing and shall state (i) the principal amount
requested, (ii) the requested date of advance, (iii) whether such Advance, Term
Advance or Loan shall accrue interest at the Base Rate or the LIBO Rate and (iv)
with
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<PAGE>
respect to LIBO Rate Loans, the applicable Interest Period. Each request (i) for
a Base Rate Loan shall be made no later than 11:00 a.m. on the requested date of
advance and (ii) for a LIBO Rate Loan shall be made at least two Business Days
prior to the requested date of advance. Each LIBO Rate Loan shall be in a
minimum principal amount of $50,000. The Borrower shall also deliver to the
Bank, not later than 11:00 a.m. on the requested date of advance, a certificate
(the "Borrowing Base Certificate") substantially in the form of Exhibit C
attached hereto, duly completed, executed and delivered by an authorized officer
of the Borrower.
2.8 Commitment Fee. The Borrower agrees to pay to the Bank a commitment fee
on the amount of the Commitment from time to time, from the date hereof until
the earlier of the Revolving Credit Maturity Date or the termination of the
Commitment as provided in Section 2.9 hereof, at the rate of 1/8 of 1% per
annum, payable, in monthly installments in arrears, on the first day of each
month, commencing on the first day of the second month following the Effective
Date and continuing until the Revolving Credit Maturity Date (or upon such
earlier date as the Commitment shall be terminated). The commitment fee shall be
computed on the basis of the actual number of days elapsed over a year of 360
days (having 12 months of 30 days each). The Borrower shall also pay to the Bank
on the Effective Date a fee of 1/8 of 1% of the principal amount of the Term
Loan.
2.9 Termination or Reduction of the Commitment. The Borrower shall have the
right, upon no less than three Business Days' prior written notice to the Bank,
to terminate in whole or reduce in part the unused portion of the Commitment,
provided that each partial reduction shall be in the amount of $50,000 or an
integral multiple thereof. Simultaneously with any termination or partial
reduction of the Commitment, the Borrower shall pay the aforesaid commitment fee
as accrued and unpaid to the date thereof.
2.10 Net Payments. The Borrower shall make each payment hereunder and under
the Notes not later than 12:00 Noon (New York City time) on the day when due in
lawful money of the United States of America and in immediately available funds
to the Bank at its office set forth in Section 10.1 hereof, without set-off or
counterclaim, and in the case of any LIBO Rate Loan, without deduction or
withholding for any present or future taxes, levies, imposts, duties, fees,
assessments or other charges of whatever nature now or hereafter imposed by any
jurisdiction or by any political subdivision or taxing authority thereof or
therein (but excluding any tax imposed on or measured by the net income of the
Bank) and all interest, penalties or similar liabilities with respect thereto
(collectively, "Taxes"). If any Taxes are so levied or imposed, the Borrower
agrees to pay the full amount of
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<PAGE>
such Taxes, and such additional amounts as may be necessary so that every
payment of all amounts due hereunder, under the Notes or under any other Loan
Document, after withholding or deduction for or on account of any Taxes, will be
not less than the amount provided for herein or in the Notes. The Borrower will
furnish to the Bank within 45 days after such payment of any Taxes, or any
withholding or deduction on account thereof, certified copies of tax receipts
evidencing such payment by the Borrower. The Borrower will indemnify and hold
harmless the Bank, and reimburse the Bank upon its written request, for the
amount of any Taxes so levied or imposed and paid or withheld by the Bank.
2.11 Business Days. Whenever any payment to be made hereunder or under the
Notes shall be stated to be due on any day other than a Business Day, then,
except as otherwise provided in Section 2.4 hereof, such payment shall be made
on the next succeeding Business Day and such extension of time shall in such
case be included in the computation of payment of interest (or commitment fee).
2.12 Charge. Without in any way limiting any right of offset, counterclaim
or banker's lien which the Bank may otherwise have at law, the Borrower hereby
irrevocably authorizes and directs the Bank, if and to the extent any payment of
principal, interest or any fee is not otherwise made on any day when due, to
charge against the Borrower's account or accounts at the Bank, an amount or
amounts equal in the aggregate to such aforesaid sums as are due and payable
from time to time to the Bank. The Bank shall use reasonable efforts to notify
the Borrower as soon as practicable following any such action.
2.13 Late Fees. Without limitation of any other term or provision contained
herein or in any of the Loan Documents, in the event any payment due hereunder
or any of the Notes or any other Loan Document is not received by the Bank
within ten days of its due date, the Borrower will pay a late charge of five
percent (5%) of such overdue payment; provided, however, such late charge shall
not be less than $25.00 nor more than $2,500.00.
III. SPECIAL PROVISIONS
3.1 Alternate Interest Rate. If within one Business Day of any date that
the Borrower requests a LIBO Rate Loan, the Bank shall determine in its sole
discretion, reasonably exercised, that it is unable to quote the requested LIBO
Rate or that it is unable to fund the requested LIBO Rate Loan for the Interest
Period requested, the Bank shall promptly notify the Borrower of such
determination pursuant to Section 10.1 and no LIBO Rate Loan shall be made by
the Bank on the borrowing date for which such request was made. Upon receipt of
such notification, the Borrower may withdraw any outstanding request for a LIBO
Rate Loan by
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<PAGE>
giving written notice of withdrawal to the Bank pursuant to Section 10.1 prior
to such borrowing date. Unless withdrawn in accordance with this Section 3.1,
any outstanding request for such LIBO Rate Loan shall be deemed to be a request
for a Base Rate Loan in equal principal amount, and such Base Rate Loan shall be
made on such borrowing date. At such time thereafter as the Bank shall be able
to quote the requested LIBO Rate or fund the requested LIBO Rate Loan for the
Interest Period requested, the Bank shall so notify the Borrower whereupon the
Borrower pursuant to Section 10.1 shall have the right to request a LIBO Rate
Loan in accordance with the terms hereof.
3.2 Indemnification. Except as provided in Section 3.1 hereof, each request
for a LIBO Rate Loan shall be irrevocable and binding upon the Borrower. The
Borrower hereby agrees to indemnify the Bank, upon demand by the Bank at any
time, against any and all actual losses (including any actual loss of profit),
costs or expenses which the Bank may at any time or from time to time sustain or
incur as a consequence of: (a) any breach by the Borrower of its obligation to
borrow on the borrowing date specified in any borrowing notice requesting a LIBO
Rate Loan, (b) any failure by the Borrower to pay punctually on the due date
thereof any amount payable by the Borrower to the Bank on LIBO Rate Loans, (c)
the acceleration of the time of payment of any of the Borrower's obligations in
respect of LIBO Rate Loans in accordance with any of the provisions of this
Agreement, (d) the repayment or prepayment of the principal of any of the LIBO
Rate Loans on a date other than the end of the applicable Interest Period or (e)
the conversion of a LIBO Rate Loan to a Base Rate Loan on a date other than the
end of the applicable Interest Period. Such losses, costs or expenses shall
include, without limitation, (i) any costs incurred by the Bank in carrying
funds which were to have been borrowed by the Borrower or in carrying funds to
cover any overdue principal, overdue interest or any other overdue sums payable
by the Borrower to the Bank in respect of LIBO Rate Loans, (ii) any interest
payable by the Bank to the lenders of the funds referred to in the immediately
preceding clause (i), and (iii) any actual losses (including any actual loss of
profit) incurred or sustained by the Bank in liquidating or reemploying funds
acquired from third parties to make any of the LIBO Rate Loans or to fund or
maintain all or any part of the principal of any of the LIBO Rate Loans.
3.3 Changes in Circumstances. If at any time, the Bank shall reasonably
determine that:
(a) the Bank is unable to obtain funds in the principal amount specified in
any request for a LIBO Rate Loan for periods equal to the specified Interest
Period;
(b) the LIBO Rate does not or will not accurately
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<PAGE>
reflect the cost to the Bank of obtaining or maintaining any LIBO Rate Loan
during any Interest Period; or
(c) any present or future law or regulation (or in the interpretation
thereof by any governmental authority charged with the administration or
interpretation thereof) has made or will make it unlawful for the Bank to make
or maintain any LIBO Rate Loan or to comply with any of the Bank's obligations
in respect of any LIBO Rate Loans; then, in each case, the Bank may promptly
give notice of such determination and reasons for the determination to the
Borrower. Upon such notification, the Bank's obligation to make LIBO Rate Loans
shall be suspended until the Bank determines that the circumstances described in
subparagraphs (a), (b) and (c) of this Section 3.3 have ceased to exist.
Following the Bank's notice under subparagraphs (b) or (c) of this Section 3.3,
all outstanding applicable LIBO Rate Loans of the Bank shall be converted to
Base Rate Loans at the end of the applicable Interest Period; provided, however,
that if it shall be unlawful for the conversion of such LIBO Rate Loans to Base
Rate Loans to be effective as of the end of the applicable Interest Period, such
conversion shall be deemed to occur as of the date of such notice by the Bank.
3.4 Additional Costs and Expenses. The Borrower recognizes that the cost to
the Bank of making or maintaining LIBO Rate Loans or any portion thereof may
fluctuate, and the Borrower agrees to pay to the Bank, within ten (10) days
after written demand, an additional amount or amounts as the Bank shall
reasonably determine will compensate the Bank for additional costs incurred by
the Bank in maintaining LIBO Rate Loans or any portion thereof as a result of:
(i) the imposition after the date of any LIBO Rate Loan of, or changes
after the date of any LIBO Rate Loan in, the reserve requirements promulgated by
the Board of Governors of the Federal Reserve System of the United States,
including, but not limited to, any reserve on Eurocurrency Liabilities as
defined in Regulation D of the Board of Governors of the Federal Reserve System
of the United States at the ratios provided in such Regulation from time to
time, it being agreed that the portion or portions of any Note bearing interest
at the LIBO Rate shall be deemed to constitute Eurocurrency Liabilities, as
defined by such Regulation, and it being further agreed that such Eurocurrency
Liabilities shall be deemed to be subject to such reserve requirements without
benefit of, or credit for, prorations, exceptions or offsets that may be
available to the Bank or from time to time under such regulations, and
irrespective of whether the Bank actually maintains all or any portion of the
reserve; or
(ii) any change, after the date of any LIBO Rate Loan, in any applicable
laws, rules or regulations or in the
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interpretation or administration thereof by any domestic or foreign governmental
authority charged with the interpretation or administration thereof (whether or
not having the force of law) or by any domestic or foreign court changing the
basis of taxation of payments to the Bank of the principal of or the interest on
any LIBO Rate Loan or any other payments made hereunder (other than taxes
imposed on all or any portion of the overall net income of the Bank), or
imposing, modifying or applying any reserve, special deposit or similar
requirement against assets of, deposits with or for the account of, credit
extended by, or any other acquisition of funds for loans by the Bank, or
imposing on the Bank or on the London Interbank Market any other condition
affecting this Agreement or the portion or portions of any Note bearing interest
at LIBO Rates so as to increase the cost to the Bank of making or maintaining
LIBO Rate Loans or to reduce the amount of any sum received or receivable by the
Bank under any Note (whether of principal, interest or otherwise); or
(iii) if after the date of any LIBO Rate Loan, the Bank shall have
determined that the applicability of any law, rule, regulation or guideline
adopted or arising out of the July 1988 report of the Basle Committee on Banking
Regulations and Supervisory Practices entitled "International Convergence of
Capital Measurement and Capital Standards", or the adoption after the date
hereof of any other law, rule, regulation or guideline regarding capital
adequacy, or any change therein, or any change in any of the foregoing or in the
interpretation or administration of any of the foregoing by any domestic or
foreign governmental authority, central bank or comparable agency charged with
the interpretation or administration thereof, or compliance by the Bank with any
request or directive regarding capital adequacy of any such authority, central
bank or comparable agency, has or would have the effect of reducing the rate of
return on the Bank's capital as a consequence of the Bank's obligations with
respect to the Advances or under any Note or this Agreement, to a level below
that which the Bank could have achieved but for such adoption, change or
compliance (taking into consideration the Bank's policies, if any, with respect
to capital adequacy).
Subject to the provisions of Section 3.2 hereof, in the event of any of the
foregoing, the Borrower shall have the right to convert any LIBO Rate Loan
affected thereby to a Base Rate Loan.
Any amount or amounts payable by the Borrower to the Bank in accordance
with the provisions of this Section shall be paid within ten (10) days of
receipt by the Borrower from the Bank of a statement setting forth the amount or
amounts due and the basis for the determination from time to time of such amount
or amounts, which statement shall be conclusive and binding upon the Borrower
absent manifest error. Failure on the part of the
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Bank to demand compensation for any increased costs in any Interest Period shall
not constitute a waiver of the Bank's right to demand compensation for any
increased costs incurred during any such Interest Period or in any other or
subsequent or prior Interest Period.
IV. CONDITIONS PRECEDENT
4.1 Initial Conditions Precedent. The obligation of the Bank to make the
initial Advance or Term Advance hereunder, whichever is earlier, is subject to
the receipt by the Bank of each and every one of the following on or before the
disbursement of such Advance or Term Advance (as the case may be) in form and
substance satisfactory to the Bank:
(a) An originally executed copy of this Agreement, the Revolving Credit
Note, the Term Note, the Guaranty Agreement, the Pledge Agreement and the
Custody Agreement, duly executed by the respective parties thereto;
(b)(b) An originally executed copy of the Borrowing Base Certificate, duly
executed by the Borrower and dated as of the Effective Date;
(c) A copy of the certificate of incorporation and bylaws of the Borrower
and the Guarantor, in each case, certified as a true copy by the Secretary or an
Assistant Secretary of the Borrower or the Guarantor, as the case may be;
(d) A good standing certificate with respect to each of the Borrower and
the Guarantor issued as of a recent date by the Secretary of State or other
appropriate official of (i) the state or other jurisdiction of its incorporation
and (ii) each state or other jurisdiction in which it is qualified or authorized
to transact business as a foreign corporation;
(e) A certificate of the Secretary or an Assistant Secretary of the
Borrower and the Guarantor certifying the names and true signatures of the
officers of the Borrower and the Guarantor authorized to sign this Agreement and
the other Loan Documents to be signed by it;
(f) A copy of the resolutions approved by the Board of Directors of the
Borrower authorizing the execution, delivery and performance by the Borrower of
each of the Loan Documents to which it may be a party, certified as a true copy
by the Secretary or an Assistant Secretary of the Borrower;
(g) A certificate of the Borrower and the Guarantor, dated as of the
Effective Date, to the effect that (i) each of the representations and
warranties of the Borrower and the Guarantor
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set forth in the Loan Documents to which each may be a party are true, correct
and complete with the same effect as though such representations and warranties
were made on and as of such date and (ii) no Default or Event of Default then
exists and is continuing;
(h) [deleted]
(i) A written opinion of counsel to the Borrower and the Guarantor,
addressed to the Bank and dated as of the Effective Date, covering the matters
set forth in Exhibit D hereto and such other matters as the Bank or its counsel
may reasonably request, which opinion shall be satisfactory in form and
substance to the Bank;
(j) [deleted]
(k) Payment of all fees, costs and expenses incurred by the Bank in
negotiating and preparing the Loan Documents, or otherwise incurred by the Bank
in consummating the transactions described herein, including without limitation,
all counsel fees and disbursements, filing fees and recording fees;
(l) Payment of the fee set forth in Section 2.8 hereof; and
(m) Such other documents, approvals, opinions, certificates or instruments
as the Bank may reasonably require.
4.2 Additional Conditions Precedent for All Advances. In addition to the
conditions precedent set forth in Section 4.1, the Bank shall have no obligation
to make any Advance or Term Advance unless the following conditions precedent
have either been satisfied by the Borrower or waived by the Bank concurrently
with the making of such advance:
(a) The Loan Documents shall be in full force and effect and no Default or
Event of Default shall exist and be continuing;
(b) No event, action or proceeding shall have occurred (and the Bank shall
not have become aware of facts or conditions not previously known) since the
Effective Date which, in the reasonable opinion of the Bank, then has a
materially adverse effect upon, or could reasonably be expected to materially
adversely affect, (i) the operations, business, property, assets, condition
(financial or otherwise) or prospects of the Borrower or the Guarantor or (ii)
the rights and remedies of the Bank, or the ability of the Borrower or the
Guarantor to perform their respective obligations, under any of the Loan
Documents;
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(c) Each of the representations and warranties made by the Borrower and the
Guarantor in or pursuant to the Loan Documents to which each may be a party
shall be true and correct in all material respects on and as of such date as if
made on and as of such date;
(d) After giving effect to the making of such Advance or Term Advance, the
aggregate outstanding principal amount of all Loans shall not exceed the
Borrowing Base and the aggregate outstanding principal amount of all Advances
shall not exceed the Available Commitment; and
(e) The Bank shall have received a Borrowing Base Certificate duly executed
by an authorized officer of the Borrower and dated as of the date of such
Advance or Term Advance.
Each request for an Advance or Term Advance hereunder shall constitute a
representation and warranty by the Borrower as of the date of such Advance or
Term Advance that the conditions contained in this Section 4.2 have been
satisfied.
V. REPRESENTATIONS AND WARRANTIES
5. In order to induce the Bank to enter into this Agreement and, among
other things, make the Term Loan and Advances hereunder, the Borrower and the
Guarantor hereby represent, warrant and agree (each, as to itself) that:
5.1 Organization; Power; Qualification. Each (i) is a corporation duly
organized, validly existing and in good standing under the laws of its state of
incorporation, (ii) has the full power and authority to own and operate its
properties and assets and to carry on the business now conducted by it and (iii)
is qualified or authorized to do business and in good standing in all
jurisdictions wherein the character of the property owned or the nature of the
business conducted by it makes such qualification or authorization necessary,
except such jurisdictions in which the lack of qualification or authorization
does not materially adversely effect its business, assets, liabilities, results
of operations or financial condition. As of the Effective Date (but not as of
any date thereafter), the Guarantor owns approximately 50% of the issued and
outstanding capital stock of the Borrower.
5.2 Authorization of Agreement. The Borrower and the Guarantor have full
power and authority to execute, deliver and perform any action or step which may
be necessary to carry out the terms of the Loan Documents to which each may be a
party; each Loan Document to which each may be a party has been duly executed
and delivered by it and is the legal, valid and binding obligation of such party
enforceable in accordance with its terms, except as such enforceability may be
limited by any applicable bankruptcy,
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insolvency, or other laws relating to or affecting the enforcement of creditors'
rights generally and general principles of equity (regardless of whether
considered in a proceeding in equity or at law).
5.3 No Legal Bar. The execution, delivery and performance of the Loan
Documents will not (i) violate any provision of any existing law, statute, rule,
regulation or ordinance (ii) conflict with, result in a breach of or constitute
a default under (a) the certificate of incorporation or by-laws of the Borrower
or the Guarantor or (b) any order, judgment, award or decree of any court,
governmental authority, bureau or agency known to the Borrower or the Guarantor,
or (c) any mortgage, indenture, lease, contract or other agreement or
undertaking to which the Borrower or the Guarantor is a party and which is
material to its business or operations or by which it or any of its material
properties or assets may be bound, or (iii) result in the creation or imposition
of any lien or other encumbrance upon or with respect to any property or asset
now owned by the Borrower or the Guarantor other than in favor of the Bank.
5.4 Consent. No consent, license, permit, approval or authorization of,
exemption by, notice to, report to, or registration, filing or declaration with
any Person is required, or, if required, has not been obtained, in connection
with the execution, delivery, performance or validity of the Loan Documents or
the transactions contemplated thereby.
5.5 Compliance With Law. Neither the Borrower nor the Guarantor is in
violation of any applicable law, rule, regulation, statute, ordinance, or any
order, judgment, award or decree of any court, governmental authority, bureau or
agency, the violation of which would reasonably be expected to have a material
adverse affect on its business, assets, liabilities, financial condition or
results of operations.
5.6 Environmental Matters. To the best of their respective knowledge, the
Borrower and the Guarantor have substantially complied with, and on the date
hereof are in substantial compliance with, all applicable environmental laws,
rules and regulations and the requirements of any material permits issued
thereunder, and there are no pending or, to the best of their knowledge,
threatened, claims involving environmental matters against the Borrower or the
Guarantor or any real property owned or operated by them that individually or in
the aggregate could reasonably be expected to materially and adversely affect
its business, assets, liabilities, financial condition or results of operations.
5.7 Properties. The Borrower and the Guarantor have good title to all of
their respective properties and assets
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reflected in the financial statements referred to in Section 5.12 hereof (except
as sold or otherwise disposed of since the date of such financial statements),
free and clear of all liens, claims and encumbrances, except as otherwise
disclosed in said financial statements.
5.8 No Default. Except as otherwise disclosed in annual or periodic reports
filed by the Borrower with the Securities and Exchange Commission, neither the
Borrower nor the Guarantor is in default in any respect in the payment or
performance of any of its obligations or in the performance of any mortgage,
indenture or material lease, contract or other agreement or undertaking to which
it is a party or by which it or any of its properties or assets may be bound,
which default may materially adversely affect its business, assets, liabilities,
financial condition or results of operations, and no Default or Event of Default
has occurred and is continuing. Neither the Borrower nor the Guarantor is in
default under any order, award or decree of any court, arbitrator, or
governmental authority binding upon or affecting it or by which any of its
properties or assets may be bound or affected, and no such order, award or
decree, if any, materially adversely affects its ability to carry on its
business as presently conducted or to perform its obligations under the Loan
Documents to which it may be a party.
5.9 No Litigation. Except as otherwise disclosed in annual or periodic
reports filed by the Borrower with the Securities and Exchange Commission, no
litigation, investigation or proceeding of or before any court, arbitrator or
governmental authority is currently pending, nor, to the best of its knowledge,
threatened, against the Borrower or the Guarantor or any of its properties and
revenues, which, if adversely determined, would materially adversely affect its
ability to carry on its business as presently conducted or to perform its
obligations under the Loan Documents to which it may be a party.
5.10 No Burdensome Restrictions. Neither the Borrower nor the Guarantor is
a party to or is bound by any contract or agreement or instrument or subject to
any restriction which materially and adversely affects its ability to perform
its obligations under the Loan Documents to which it may be a party.
5.11 Tax Returns and Payments. All federal, state and other tax returns of
the Borrower and the Guarantor required by law to be filed have been duly filed,
and all federal, state and other taxes, assessments and governmental charges or
levies upon the Borrower and the Guarantor or any of its properties, income,
profits or assets which are due and payable have been paid, except such tax
returns the nonfiling of which, and such taxes the non-payment of which, would
not have a material adverse effect upon its business, assets, liabilities,
financial condition or results
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of operations and except for such taxes and assessments which the Borrower or
the Guarantor is disputing in good faith and for which the Borrower or the
Guarantor has properly established adequate reserves on its books for the
payment of such disputed taxes or assessments.
5.12 Financial Statements. The Borrower and the Guarantor have furnished to
the Bank true, correct and complete copies of their most recently available (i)
audited fiscal year financial statements, certified by the independent public
accountants whose report is attached thereto and (ii) unaudited interim
financial statements for the most recent fiscal period. Such financial
statements present fairly their financial condition and results of operations as
of the dates and for the periods indicated (subject, with respect to the
unaudited statements, to audit and normal year-end adjustments), and show all
known direct liabilities and all known contingent liabilities of a material
nature of the Borrower and the Guarantor in accordance with the respective
accounting principles applicable to them as of the dates and for the periods
indicated.
5.13 No Adverse Changes. Since the date of the most recent fiscal year
financial statements delivered to the Bank, no material adverse change has
occurred in the business, assets, liabilities, financial condition or results of
operations of the Borrower or the Guarantor.
5.14 ERISA. (a) The Borrower and the Guarantor are in compliance in all
material respects with the applicable provisions of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA") and all regulations issued
thereunder.
(b) No "employee benefit plan", as defined in Section 3 of ERISA,
maintained by Borrower or the Guarantor, as from time to time in effect (the
"Plans"), nor any trusts created thereunder, nor any trustee or administrator
thereof, has engaged in a "prohibited transaction," as defined in Section 4975
of the Internal Revenue Code of 1986, as amended, which could subject the
Borrower or the Guarantor, any Plan or any such trust, or any trustee or
administrator thereof, or any party dealing with any Plan or any such trust to
the tax or penalty on prohibited transactions imposed by said Section 4975.
Neither any of the Plans nor any such trusts have been terminated, nor has there
been any "reportable event," as defined in Section 4043 of ERISA, or any
"accumulated funding deficiency" (as defined therein) with respect thereto.
Neither the Borrower nor the Guarantor has incurred any liability to the Pension
Benefit Guaranty Corporation.
5.15 Federal Reserve Regulations. Neither the Borrower nor the Guarantor is
engaged principally, or as one of its
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important activities, in the business of extending credit for the purpose of
purchasing or carrying any margin stock (within the meaning of Regulations U and
X of the Board of Governors of the Federal Reserve System). No part of any of
the Term Loan or any Advance hereunder shall be used to purchase or carry any
such margin stock or to extend credit to others for the purpose of purchasing or
carrying any such margin stock.
5.16 Solvency. On and as of the date hereof and the date of each Advance,
and after giving effect to all Obligations which may be created hereunder, (i)
the sum of the assets, at a fair valuation, of the Guarantor will exceed its
debts, (ii) the Guarantor has not incurred and does not intend to, or believe
that it will, incur debts beyond its ability to pay such debts as such debts
mature, and (iii) the Guarantor will have sufficient capital and assets with
which to conduct its business. For purposes of this Section, the term "debt"
means any liability on a claim, and the term "claim" means a right to payment,
whether or not such a right is reduced to judgment, liquidated, unliquidated,
fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable,
secured or unsecured.
5.17 Acknowledgment of Financial Condition. The Guarantor acknowledges that
it is aware of the financial condition of the Borrower and has made its own
investigation and review thereof, without reliance upon any statement or
representation of the Bank or any officer, employee or agent thereof. The
Guarantor further acknowledges that the Bank is relying upon the guaranty by the
Guarantor of the Obligations and would not have entered into this Agreement in
the absence of such guaranty.
5.18 Use of Proceeds. All Advances shall be used for working capital and
general corporate purposes for the Borrower and its subsidiaries and the
proceeds of the Term Loan shall be used for capital expenditures and the
refinancing of existing leases for the Borrower and its subsidiaries.
5.19 Certain Regulations. Neither the Borrower nor the Guarantor is an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended, nor a "holding company" or a "subsidiary company" of a "holding
company" or an "affiliate" of a "holding company" or of a "subsidiary company"
of a "holding company" within the meaning of the Public Utility Holding Company
Act of 1935.
5.20 Intellectual Property. The Borrower and the Guarantor own or license
all material patents, trademarks, service marks, tradenames, copyrights,
licenses, franchises and formulas, or rights with respect to the foregoing, or
has obtained assignments of all material licenses and other rights of material
nature necessary for the conduct of its business as now and
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contemplated to be conducted, in each case, to its knowledge, without any
conflict with or infringement of the rights of others.
5.21 Accuracy and Completeness of Information. No document furnished or
statement made in writing to the Bank by or on behalf of the Borrower or the
Guarantor in connection with the negotiation, preparation or execution of this
Agreement or any of the other Loan Documents contains any untrue statement of a
material fact or omits to state any such material fact necessary in order to
make the statements contained therein not misleading.
VI. COVENANTS
6. The Borrower and the Guarantor, severally and not jointly, covenant and
agree that until all the Obligations have been satisfied and paid in full and
the Bank has no further obligation to make any Advance hereunder, the Borrower
and the Guarantor will comply with the following covenants:
6.1 Preservation of Existence. The Borrower and the Guarantor will do or
cause to be done all things necessary to preserve and maintain in full force and
effect its corporate existence and all contracts, rights, licenses, permits,
franchises, patents, trademarks and trade names, all of the foregoing to the
extent the same are, in its reasonable judgment, necessary or material to the
proper conduct of its business and shall qualify and remain qualified as a
foreign corporation and authorized to do business in each jurisdiction in which
the character of the property owned or the nature of the business conducted by
it makes such qualification or authorization necessary, except such
jurisdictions in which the lack of qualification or authorization does not
materially adversely affect its business, results of operations or financial
condition.
6.2 Compliance with Laws. The Borrower and the Guarantor will comply with
all laws, ordinances, governmental rules and regulations to which it or its
properties or assets is, or might become subject (unless the same shall be
contested in good faith and by appropriate proceedings and such contest shall
operate to stay any such non-compliance), the noncompliance with which would
materially interfere with the performance of its obligations under the Loan
Documents to which it is a party or with the proper conduct of its business.
6.3 Accounting Methods; Inspections. The Borrower and the Guarantor will
maintain a system of accounting established and administered in all material
respects in accordance with all accounting principles applicable to it and will
keep adequate records and books of account in which complete entries will be
made in all material respects in accordance therewith. The Borrower and the
Guarantor will permit officers
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and representatives of the Bank to visit and inspect any of their respective
properties or assets and to examine and make extracts of its books of account at
all reasonable times and to such reasonable extent as the Bank may reasonably
request.
6.4 Maintenance of Property; Insurance. The Borrower and the Guarantor will
keep all material property necessary in its business in good working order and
condition, subject to ordinary wear and tear and routine maintenance. The
Borrower and the Guarantor will maintain with reputable insurance companies, to
the same extent and in such amounts and manner as do companies engaged in
similar lines of business under similar circumstances, insurance on its
business, fixed assets, inventory and other properties, workers' compensation or
similar insurance as required by law and adequate public liability and
malpractice insurance against claims for personal injury or death or property
damage occurring upon, in, about or in connection with the use of any property
owned, occupied or controlled by it.
6.5 Payment of Taxes. The Borrower and the Guarantor will pay and discharge
promptly all taxes, assessments and governmental charges or levies imposed upon
it or upon its income or profits or upon any of its properties or assets before
the same shall become delinquent; provided, however, that none of the foregoing
need be paid while being contested in good faith and by appropriate proceedings,
so long as adequate book reserves have been established in accordance with all
accounting principles applicable to it with respect thereto and its title to,
and its right to use, its properties are not materially adversely affected
thereby.
6.6 Information Covenants. The Borrower and the Guarantor will each furnish
the following information to the Bank (as to itself):
(a) Quarterly Financial Statements. As soon as practicable and, in any
case, within 50 days after the close of each of the first three quarterly
accounting periods in each fiscal year, a balance sheet as at the end of such
quarterly period and the related statement of income for such period and for the
elapsed portion of the fiscal year ended with the last day of such quarterly
period, setting forth in comparative form the figures for the corresponding
periods of the previous fiscal year, which financial statements shall be
certified by an authorized officer of the Borrower or the Guarantor, as the case
may be, including all adjustments (which include only normal recurring
adjustments) necessary to present fairly, in accordance with generally accepted
accounting principles (or, in the case of the Guarantor, statutory accounting
principles), its financial condition as at the end of such period and the
results of operations and changes in cash flows for such period and for the
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elapsed portion of the fiscal year ended with the last day of such period.
(b) Annual Statements. As soon as practicable and, in any case, within 105
days after the end of each fiscal year, a balance sheet as at the end of such
fiscal year and the related statements of income and cash flows for such fiscal
year, setting forth in comparative form the figures as at the end of and for the
previous fiscal year. Such statements are to be in accordance with generally
accepted accounting principles (or, in the case of the Guarantor, statutory
accounting principles) and certified by independent certified public accountants
of recognized standing in accordance with generally accepted auditing standards.
(c) No-Default Certificate. At the time the financial statements are
furnished pursuant to subsections (a) and (b) above, the Borrower and the
Guarantor shall also furnish a Certificate duly executed by an authorized
officer of the Borrower and the Guarantor dated as of the last day of such
quarterly period or fiscal year, as the case may be, substantially in the form
of Exhibit E hereto.
(d) Copies of Other Reports. As soon as practicable, copies of (1) all such
financial statements and reports as the Guarantor shall send to its
policyholders and (2) all reports, registration statements, proxy statements and
other filings made by the Borrower with the Securities and Exchange Commission
or any national securities exchange.
(e) Notice of Litigation and Other Matters. Prompt notice of:
(1) the commencement of any proceeding or investigation by or before
any governmental body or any action or proceeding in any court or before
any arbitrator against or in any other way relating adversely to the
Borrower or the Guarantor or any of their respective properties, assets or
businesses, which, if adversely determined, would materially and adversely
affect its business, assets, liabilities, financial condition or results of
operations;
(2) any written notice received from any administrative official or
agency or any order or ruling which materially and adversely affects the
business, assets, liabilities, financial condition or results of operations
of the Borrower and the Guarantor;
(3) any amendment of the certificate of incorporation or by-laws of
the Borrower or the Guarantor which materially and adversely affects its
ability to perform its Obligations under any of the Loan Documents to which
it may be a
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party; and
(4) any Default or Event of Default hereunder.
(f) ERISA.
(1) As soon as possible, and in any event within 30 days after any
executive officer of the Borrower or the Guarantor knows or has reason to
know that any material reportable event (as defined in Section 4043 of
ERISA) with respect to any Plan has occurred, a statement of the chief
financial officer setting forth details as to such reportable event and the
action that it proposes to take with respect thereto, together with a copy
of the notice of such reportable event given to the Pension Benefit
Guaranty Corporation; and
(2) Promptly after receipt thereof, a copy of any notice the Borrower
or the Guarantor may receive from the Pension Benefit Guaranty Corporation
relating to the intention of said Corporation to terminate any Plan or to
appoint a trustee to administer any Plan.
(g) Other Information. From time to time, such other information or
documents, including without limitation, all "management letters" received from
any certified public accountants, as the Bank may reasonably request.
6.7 Accuracy and Completeness of Information. All written information,
reports, statements and other papers and data furnished to the Bank pursuant to
any provision or term of any of the Loan Documents shall be, at the time the
same is so furnished, complete and correct in all material respects.
6.8 Further Documentation. At any time and from time to time upon the
Bank's written request, the Borrower and the Guarantor will promptly and duly
execute and deliver such further documents and instruments and do such further
acts and things as the Bank may reasonably request in order to obtain the full
benefits of this Agreement and the Loan Documents and the rights and powers
herein and therein granted.
VII. EVENTS OF DEFAULT
7. Each of the following shall constitute an Event of Default, whatever the
reason for such event and whether it shall be voluntary or involuntary or be
effected by operation of law or pursuant to any judgment or order of any court
or any order, rule or regulation of any governmental body.
7.1 The Borrower (i) fails to pay any principal amount payable under any
Note or hereunder on any date when due or (ii)
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fails to make any payment of interest or any other fee or amount payable under
any Note or hereunder within 5 days from any day when due.
7.2 If any warranty or representation made by the Borrower or the Guarantor
contained herein or in any Loan Document or in any document furnished in
compliance with the provisions hereof or thereof is false or incorrect in any
material respect when made.
7.3 The Borrower or the Guarantor shall default in the performance or
observance of any other covenant or agreement contained in this Agreement or in
any Loan Document and such default shall continue unremedied for 30 days after
notice from the Bank of such default.
7.4 The Borrower or the Guarantor shall (i) default in any payment with
respect to any indebtedness for money borrowed which exceeds $1,000,000 in the
aggregate (other than the Notes), beyond the period of grace, if any, provided
in the instrument or agreement under which such indebtedness was created, (ii)
default in the observance or performance of any agreement or condition relating
to any such indebtedness contained in any instrument or agreement evidencing,
securing or relating thereto, or any other event shall occur, the effect of
which default or other event is to cause, or to permit the holder or holders of
such indebtedness (or a trustee or agent on behalf of such holder or holders) to
cause, with or without the giving of notice if required, such indebtedness to
become due prior to its stated maturity; or any such indebtedness shall be
declared due and payable prior to its stated maturity.
7.5 (i) The Borrower or the Guarantor shall commence any case, proceeding
or other action (A) under any existing or future law of any jurisdiction,
domestic or foreign, relating to bankruptcy, insolvency, reorganization or
relief of debtors, seeking to have an order for relief entered with respect to
it, or seeking to adjudicate it a bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment, winding-up, liquidation, dissolution,
composition or other relief with respect to it or its debts, or (B) seeking
appointment of a receiver, trustee, custodian or other similar official for it
or for all or any substantial part of its assets, or the Borrower or the
Guarantor shall make a general assignment for the benefit of its creditors; or
(ii) there shall be commenced against the Borrower or the Guarantor any case,
proceeding or other action of a nature referred to in clause (i) above which (A)
results in the entry of an order for relief or any such adjudication or
appointment or (B) remains undismissed, undischarged or unbonded for a period of
60 days; or (iii) there shall be commenced against the Borrower or the Guarantor
or any of their respective subsidiaries any case,
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<PAGE>
proceeding or other action seeking issuance of a warrant of attachment,
execution, distraint or similar process against all or any substantial part of
its assets, which results in the entry of an order for any such relief which
shall not have been vacated, discharged, or stayed or bonded pending appeal
within 60 days from the entry thereof; or (iv) the Borrower or the Guarantor
shall take any action in furtherance of, or indicating its consent to, approval
of, or acquiescence in, any of the acts set forth in clauses (i), (ii) or (iii)
above; or (v) the Borrower or the Guarantor shall generally not, or shall be
unable to, or shall admit in writing its inability to, pay its debts as they
become due.
7.6 A final non-appealable judgment shall be entered against the Borrower
or the Guarantor by any court for the payment of money which, together with all
other outstanding judgments against the Borrower or the Guarantor exceeds
$1,000,000 in the aggregate, which judgment is not fully covered by insurance,
or a warrant of attachment or execution or similar process shall be issued or
levied against property of the Borrower or the Guarantor which together with
other such property subject to other such process, exceeds in value $1,000,000
in the aggregate and, if within 30 days after the entry, issue or levy thereof,
such judgment, warrant or process shall not have been discharged or stayed
pending appeal, or, if within 30 days after the expiration of any such stay,
such judgment, warrant or process shall not have been discharged.
7.7 (i) A reportable event (as defined in Section 4043(b) of Title IV of
ERISA) shall have occurred with respect to any Plan of the Borrower or the
Guarantor or any Plan of the Borrower or the Guarantor shall have been
voluntarily terminated as provided in Section 4041(a) of ERISA, in either case,
if the pro forma effect thereof shall cause or result in a material adverse
change in or to the business, assets, liabilities, financial condition or
results of operations of the Borrower or the Guarantor; (ii) A trustee shall be
appointed by a United States District Court to administer any Plan; or (iii) the
Pension Benefit Guaranty Corporation shall institute proceedings to terminate
any Plan.
VIII. REMEDIES
8.1 Upon the occurrence of an Event of Default set forth in Section 7.5,
the Bank shall have no obligation to make any further Advance or Term Advance,
and all amounts outstanding (with accrued interest thereon) and all other
amounts owing under the Notes and this Agreement, shall immediately become due
and payable without presentment, demand, protest or notice of any kind, all of
which are hereby expressly waived by the Borrower and the Guarantor.
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<PAGE>
8.2 Upon the occurrence of any other Event of Default, the Bank shall have
no obligation to make any further Advance or Term Advance and the Bank may, by
written notice to the Borrower, declare all amounts outstanding (with accrued
interest thereon) and all other amounts owing to it under the Notes and this
Agreement, to be due and payable forthwith, whereupon the same shall immediately
become due and payable without presentment, demand, protest or other notice of
any kind, all of which are hereby expressly waived by the Borrower and the
Guarantor.
8.3 If any Event of Default shall occur, the Bank may exercise, in addition
to all other rights and remedies granted to it in this Agreement and in any
other instrument or agreement securing, evidencing or relating to the
Obligations, any and all rights and remedies to which it may be entitled under
applicable law. Without limiting the generality of the foregoing, the Bank may,
without any requirement of notice, setoff any and all amounts owing by the
Borrower or the Guarantor to it against any deposit or other account, whether
general or special, maintained in the Bank by the Borrower or the Guarantor or
any other property of the Borrower or the Guarantor which may now or hereafter
be in the Bank's possession or control, and such right of setoff shall be deemed
to have been exercised immediately upon such stated or accelerated maturity as
aforesaid even though such setoff is not noted on the Bank's records until a
later time. The Borrower and the Guarantor further grant to the Bank a lien and
security interest in and to the foregoing as collateral security for the
Obligations and agrees that, with respect thereto, the Bank shall have all of
the rights and remedies of a secured party under the Uniform Commercial Code as
in effect in any applicable jurisdiction.
8.4 The Borrower and the Guarantor agree that each shall remain liable for
any deficiency if the proceeds of any sale or disposition of any security for
the Obligations is insufficient to pay all amounts to which the Bank is
entitled, the Borrower and the Guarantor also being liable for the reasonable
fees of any attorneys employed by the Bank to collect such deficiency. The
Borrower and the Guarantor expressly agree that it shall not be necessary or
required for the Bank to file suit or proceed to assert or obtain a claim
against any party or foreclose against or seek to realize upon any security now
or hereafter existing for the Obligations or exercise or assert any other right
or remedy to which the Bank may be entitled in connection with the Obligations
or any security or guarantee relating thereto, before or as a condition of
enforcing the liability of the Borrower and the Guarantor under the Loan
Documents.
8.5 The Borrower and the Guarantor also agree to pay all reasonable Bank
Costs incurred with respect to the collection
-27-
<PAGE>
of any of the Obligations and the enforcement of any of the Bank's rights
hereunder.
8.6 The Borrower and the Guarantor hereby waive presentment, demand,
protest or any notice of any kind in connection with this Agreement and the
Notes except as otherwise expressly provided herein.
IX. INDEMNIFICATION
9.1 Indemnification. The Borrower and the Guarantor, jointly and severally,
agree to pay, reimburse, indemnify and hold harmless, the Bank, its directors,
officers, employees, agents and representatives from and against any and all
actions, costs, damages, disbursements, expenses (including reasonable
attorneys' fees), judgments, liabilities, losses, obligations, penalties and
suits of any kind or nature whatsoever with respect to:
(i) the development, preparation, execution, performance, enforcement,
interpretation, amendment, modification, waiver or consent of any of the
Loan Documents;
(ii) the Bank's exercise of any right or remedy granted to it in any
of the Loan Documents, the collection or enforcement of any of the
Obligations and the proof or allowability of any claim arising under any of
the Loan Documents, whether in any bankruptcy or receivership proceeding or
otherwise;
(iii) any claim of third parties, and the prosecution or defense
thereof, arising out of or in any way connected with any of the Loan
Documents; and
(iv) any and all recording and filing fees and taxes, and any and all
liabilities with respect thereto, or resulting from any delay in paying
stamp and other taxes, if any, which may be payable or determined to be
payable in connection with the Loan Documents.
Notwithstanding the foregoing, the Bank shall not be entitled to any
indemnification in the event that it shall be finally determined by a court of
competent jurisdiction that the Bank has breached this Agreement or in any suit
brought by the Borrower or the Guarantor against the Bank in which it shall be
finally determined that the Bank is liable to the Borrower or the Guarantor.
X. MISCELLANEOUS
10.1 Notice. All notices and other communications given to or made upon any
party hereto in connection with this Agreement shall, except as otherwise
expressly herein provided, be
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<PAGE>
in writing (including telex, telecopy or telegraphic communication) and mailed
(by first class, United States mail, postage prepaid), telexed, telecopied,
telegraphed or hand delivered to the respective parties, as follows:
Bank: Summit Bank
750 Walnut Avenue
Cranford, New Jersey 07016
Att: Wayne Trotman
- with a copy to -
Wolff & Samson
5 Becker Farm Road
Roseland, New Jersey 07068
Att: Morris Bienenfeld, Esq.
Borrower: CareAdvantage, Inc.
485-C Route 1 South
Iselin, New Jersey 08830
Att: Thomas P. Riley
- with a copy to -
Epstein Becker & Green
250 Park Avenue
New York, New York 10177
Att: Jeffrey H. Becker, Esq.
Paul Squire, Esq.
Guarantor: Blue Cross and Blue Shield
of New Jersey, Inc.
Three Penn Plaza East
Newark, New Jersey 07105
Att: Robert J. Pures
- with a copy to -
Blue Cross and Blue Shield
of New Jersey, Inc.
Three Penn Plaza East
Newark, New Jersey 07105
Att: Susan Scholle Connor, Esq.
or to such changed address as may be fixed by notice. All such notices and other
communications shall, except as otherwise expressly herein provided, be
effective when received by the party
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<PAGE>
to whom properly addressed, the written receipt by any employee of any such
party constituting sufficient evidence of such receipt, in the case of telex or
telecopy, when received, and in the case of telegraph, when delivered to the
telegraph company, charge prepaid.
10.2 No Waiver; Cumulative Remedies. No failure to exercise and no delay in
exercising, on the part of the Bank, any right, power or privilege hereunder,
shall operate as a waiver thereof; nor shall any single or partial exercise of
any right, power or privilege hereunder preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies herein provided are cumulative and not exclusive of any rights or
remedies provided by law.
10.3 Survival of Agreements. All agreements, representations and warranties
made herein, and in any certificates delivered pursuant hereto shall survive the
execution and delivery of this Agreement and the Notes and the making of any
Advance or Term Advance for so long as any Loan is outstanding or the Bank has
any obligation to make any Advance or Term Advance hereunder.
10.4 Amendment. No modification, amendment or waiver of any provision of
this Agreement or the Notes, nor consent to any departure by the Borrower or the
Guarantor shall in any event be effective unless the same shall be in writing
and signed by the party granting such modification, amendment or waiver, and
then such waiver or consent shall be effective only in the specific instance and
for the purpose for which given.
10.5 Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the Borrower, the Guarantor, the Bank, all future holders of
the Notes and their respective successors and assigns, except that the Borrower
may not assign or transfer any of its rights under this Agreement without the
prior written consent of the Bank. The Bank shall be free to grant, sell or
transfer one or more assignments, participating interests or participation
rights in, to and under the Notes and its rights hereunder without notice to, or
the consent of, the Borrower or the Guarantor; provided, however, that no
assignment shall be binding upon the Borrower until it receives notice thereof.
10.6 Severability. In case any one or more of the provisions contained in
this Agreement or the Notes should be invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining provisions
contained herein and therein shall not in any way be affected or impaired
thereby.
10.7 Counterparts. This Agreement may be executed by
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<PAGE>
the parties hereto on any number of separate counterparts and all such
counterparts taken together shall constitute one and the same instrument.
10.8 Governing Law; No Third Party Rights. This Agreement and the Notes and
the rights and obligations of the parties hereunder and thereunder shall be
governed by and construed and interpreted in accordance with the law of the
State of New Jersey. This Agreement is solely for the benefit of the parties
hereto and their respective successors and assigns, and no other person shall
have any right, benefit, priority or interest in, under or because of the
existence of, this Agreement.
10.9 WAIVER OF JURY TRIAL. EACH OF THE PARTIES TO THIS AGREEMENT WAIVES ALL
RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT
OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
10.10 JURISDICTION. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY SUBMITS
TO THE JURISDICTION OF ANY NEW JERSEY STATE OR UNITED STATES FEDERAL COURT
SITTING IN NEW JERSEY OVER ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING
TO THIS AGREEMENT OR THE NOTES, AND EACH OF THE PARTIES HERETO HEREBY
IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY
BE HEARD AND DETERMINED IN SUCH NEW JERSEY STATE OR FEDERAL COURT. EACH OF THE
OBLIGORS IRREVOCABLY CONSENTS TO THE SERVICE OF ANY AND ALL PROCESS IN ANY SUCH
ACTION OR PROCEEDING BY THE DELIVERY OF COPIES OF SUCH PROCESS TO SUCH PARTY AT
ITS ADDRESS, AND IN THE MANNER, SPECIFIED IN SECTION 10.1.
10.11 Confidentiality. The Bank agrees to use reasonable precautions to
keep confidential, in accordance with safe and sound banking practices, any
non-public information supplied to it by the Borrower or Guarantor pursuant to
this Agreement which is identified as being confidential at the time the same is
delivered to the Bank, and to limit the use of the same to the transactions and
relationship described herein, provided that nothing herein shall limit the
disclosure of any such information (i) to the extent required by statute, rule,
regulation or judicial process, (ii) to counsel for the Bank, (iii) to bank
examiners, auditors or accountants, (iv) in connection with any litigation to
which the Bank is a party or (v) to any assignee or participant (or prospective
assignee or participant) so long as such assignee or participant (or prospective
assignee or participant) agrees to use reasonable precautions to keep such
information confidential; and provided finally that in no event shall the Bank
be obligated or required to return any materials furnished by the Borrower or
Guarantor.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their proper and
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<PAGE>
duly authorized officers as of the day and year first above written.
ATTEST: CAREADVANTAGE, INC.
By: By:
--------------------------- ---------------------------
Name: Name:
Title: Title:
ATTEST: BLUE CROSS AND BLUE SHIELD
OF NEW JERSEY, INC.
By: By:
--------------------------- ----------------------------
Name: Name:
Title: Title:
SUMMIT BANK
By:
----------------------------
Name:
Title:
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<PAGE>
EXHIBIT A
Form of Revolving Credit Note
[See Exhibit 10(f)(1)]
-33-
<PAGE>
EXHIBIT B
Form of Term Note
[See Exhibit 10(f)(2)]
-34-
<PAGE>
EXHIBIT C
Form of Borrowing Base Certificate
[Not attached hereto; on file with the Company]
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<PAGE>
EXHIBIT D
Form of Opinion of Counsel
[Not attached hereto; on file with the Company]
-36-
<PAGE>
EXHIBIT E
Form of No-Default Certificate
[Not attached hereto; on file with the Company]
-37-
REVOLVING CREDIT NOTE
$1,500,000 June 13, 1997
FOR VALUE RECEIVED, the undersigned, CAREADVANTAGE, INC., a Delaware
corporation (the "Borrower"), hereby unconditionally promises to pay on or
before June 13, 1998 (the "Revolving Credit Maturity Date"), to the order of
SUMMIT BANK, a banking institution of the State of New Jersey (the "Bank"), at
the office of the Bank located at 210 Main Street, Hackensack, New Jersey, or at
such other location as the Bank shall designate, in lawful money of the United
States of America and in immediately available funds, the principal amount of
the lesser of (i) $1,500,000 or (ii) so much thereof as shall have been advanced
(the "Advances") by the Bank to the Borrower pursuant to that certain Credit
Agreement by and among the Borrower, Blue Cross and Blue Shield of New Jersey,
Inc., as guarantor, and the Bank dated as of the date hereof (the "Credit
Agreement"). Terms defined in the Credit Agreement shall have the same meaning
when used herein. All of the terms and provisions of the Credit Agreement are
incorporated herein by reference as if set forth at length herein.
The Borrower further agrees to pay interest in like money at such office on
the unpaid principal amount hereof from time to time in accordance with the
terms and provisions of the Credit Agreement. The unpaid principal amount hereof
shall bear interest commencing with the date hereof at the rates set forth in
the Credit Agreement.
Interest shall be payable in arrears and shall be calculated on the basis
of a 360-day year (having 12 months of 30 days each) for the actual number of
days elapsed.
The principal and interest of this Note shall be payable in accordance
with, and on the dates specified in, the Credit Agreement.
All Advances made by the Bank to the Borrower hereunder shall be noted by
the Bank on any schedule or other computer record which may now or hereafter be
annexed hereto, and the Bank is authorized to make such notations and to annex
such schedule or computer record which shall be prima facie evidence of the
principal amount outstanding hereunder at any time; provided, however, that any
failure to make such a notation (or any error in notation) shall not limit or
otherwise affect the obligation of the Borrower hereunder which is and shall
remain absolute and unconditional.
In the event that any payment shall not be received by the Bank within ten
(10) days of the due date, the Borrower shall, to the extent permitted by law,
pay to the Bank a late charge (the
<PAGE>
"Late Charge") equal to five percent (5%) of the overdue payment to cover the
extra expense involved in handling delinquent payments, but in no event shall
any Late Charge be less than $25 or more than $2,500. The term "payment" shall
be construed to include principal, interest, fees and any other amount due under
the terms of this Note or any of the other Loan Documents. Acceptance by the
Bank of payment of a Late Charge shall in no way be construed to be an election
of remedies or waiver by the Bank of any of its rights at law or under the terms
of any of the Loan Documents. Any such Late Charge assessed is immediately due
and payable.
This Note is secured by the Collateral described and defined in the Pledge
Agreement.
The Bank may declare this Note to be immediately due and payable if any
Event of Default under the Credit Agreement or any of the other Loan Documents
shall have occurred and be continuing.
If any Event of Default shall have occurred and be continuing, the Bank
may, in addition to such other and further rights and remedies as provided by
law or under any of the Loan Documents, (i) collect interest on any overdue
amount from the date when due until paid at a rate per annum equal to the Base
Rate plus three (3%) percent, (ii) setoff such amount against any deposit
account maintained in the Bank by the Borrower, and such right of setoff shall
be deemed to have been exercised immediately upon such stated or accelerated
maturity even though such setoff is not noted on the Bank's records until a
later time and (iii) hold as security any property heretofore or hereafter
delivered into custody, control or possession of the Bank or any entity acting
as agent for the Bank by any person liable for the payment of this Note.
This Note may not be changed orally, but only by an agreement in writing,
signed by the party against whom enforcement of any waiver, change, modification
or discharge is sought.
Should the indebtedness represented by this Note or any part hereof be
collected at law or in equity, or in bankruptcy, receivership, or any other
court proceeding, or should this Note be placed in the hands of attorneys for
collection upon default, the Borrower agrees to pay, in addition to the
principal and interest due and payable hereon, all reasonable costs of
collecting or attempting to collect this Note, including reasonable attorneys'
fees and expenses.
This Note shall be and remains in full force and in no way impaired until
the actual payment in full thereof to the Bank, its successors or assigns.
Anything herein to the contrary notwithstanding, the obligations of the
Borrower under this Note shall be subject to the
- 2 -
<PAGE>
limitation that payments of interest shall not be required to the extent that
receipt of any such payment by the Bank would be contrary to provisions of law
applicable to the Bank limiting the maximum rate of interest which may be
charged or collected by the Bank.
The Borrower and all endorsers and guarantors of this Note hereby waiver
presentment, demand for payment, protest and notice of dishonor of this Note.
This Note is binding upon the Borrower and its successors and assigns and
shall inure to the benefit of the Bank and its successors and assigns.
This Note and the rights and obligations of the parties hereto shall be
subject to and governed by the laws of the State of New Jersey.
IN WITNESS WHEREOF, the undersigned has caused this Note to be duly
executed by its authorized officers, as of the day and year above written.
ATTEST CAREADVANTAGE, INC.
By:__________________________ By:_______________________
Name: Name:
Title: Title:
- 3 -
TERM NOTE
$1,500,000 June 13, 1997
FOR VALUE RECEIVED, the undersigned, CAREADVANTAGE, INC., a Delaware
corporation (the "Borrower"), hereby unconditionally promises to pay on or
before June 30, 2000 (the "Term Loan Maturity Date"), to the order of SUMMIT
BANK, a banking institution of the State of New Jersey (the "Bank"), at the
office of the Bank located at 210 Main Street, Hackensack, New Jersey 07601, or
at such other location as the Bank shall designate, in lawful money of the
United States of America and in immediately available funds, the principal
amount of the lesser of (i) $1,500,000 or (ii) so much thereof as shall have
been advanced (the "Term Advances") by the Bank to the Borrower under the Term
Loan described in Section 2.1 of that certain Credit Agreement by and among the
Borrower, Blue Cross and Blue Shield of New Jersey, Inc., as guarantor, and the
Bank dated as of the date hereof (the "Credit Agreement"). Terms defined in the
Credit Agreement shall have the same meaning when used herein. All of the terms
and provisions of the Credit Agreement are incorporated herein by reference as
if set forth at length herein.
The Borrower further agrees to pay interest in like money at such office on
the unpaid principal amount hereof from time to time in accordance with the
terms and provisions of the Credit Agreement. The unpaid principal amount hereof
shall bear interest commencing with the date hereof at the rates set forth in
the Credit Agreement.
Interest shall be payable in arrears and shall be calculated on the basis
of a 360-day year (having 12 months of 30 days each) for the actual number of
days elapsed.
The principal and interest of this Note shall be payable in accordance
with, and on the dates specified in, the Credit Agreement.
All Term Advances made by the Bank to the Borrower hereunder shall be noted
by the Bank on any schedule or other computer record which may now or hereafter
be annexed hereto, and the Bank is authorized to make such notations and to
annex such schedule or computer record which shall be prima facie evidence of
the principal amount outstanding hereunder at any time; provided, however, that
any failure to make such a notation (or any error in notation) shall not limit
or otherwise affect the obligation of the Borrower hereunder which is and shall
remain absolute and unconditional.
In the event that any payment shall not be received by the Bank within ten
(10) days of the due date, the Borrower shall,
<PAGE>
to the extent permitted by law, pay to the Bank a late charge (the "Late
Charge") equal to five percent (5%) of the overdue payment to cover the extra
expense involved in handling delinquent payments, but in no event shall any Late
Charge be less than $25 or more than $2,500. The term "payment" shall be
construed to include principal, interest, fees and any other amount due under
the terms of this Note or any of the other Loan Documents. Acceptance by the
Bank of payment of a Late Charge shall in no way be construed to be an election
of remedies or waiver by the Bank of any of its rights at law or under the terms
of any of the Loan Documents. Any such Late Charge assessed is immediately due
and payable.
This Note is secured by the Collateral described and defined in the Pledge
Agreement.
The Bank may declare this Note to be immediately due and payable if any
Event of Default under the Credit Agreement or any of the other Loan Documents
shall have occurred and be continuing.
If any Event of Default shall have occurred and be continuing, the Bank
may, in addition to such other and further rights and remedies as provided by
law or under any of the Loan Documents, (i) collect interest on any overdue
amount from the date when due until paid at a rate per annum equal to the Base
Rate plus three (3%) percent, (ii) setoff such amount against any deposit
account maintained in the Bank by the Borrower, and such right of setoff shall
be deemed to have been exercised immediately upon such stated or accelerated
maturity even though such setoff is not noted on the Bank's records until a
later time and (iii) hold as security any property heretofore or hereafter
delivered into custody, control or possession of the Bank or any entity acting
as agent for the Bank by any person liable for the payment of this Note.
This Note may not be changed orally, but only by an agreement in writing,
signed by the party against whom enforcement of any waiver, change, modification
or discharge is sought.
Should the indebtedness represented by this Note or any part hereof be
collected at law or in equity, or in bankruptcy, receivership, or any other
court proceeding, or should this Note be placed in the hands of attorneys for
collection upon default, the Borrower agrees to pay, in addition to the
principal and interest due and payable hereon, all reasonable costs of
collecting or attempting to collect this Note, including reasonable attorneys'
fees and expenses.
This Note shall be and remains in full force and in no way impaired until
the actual payment in full thereof to the Bank, its successors or assigns.
Anything herein to the contrary notwithstanding, the
- 2 -
<PAGE>
obligations of the Borrower under this Note shall be subject to the limitation
that payments of interest shall not be required to the extent that receipt of
any such payment by the Bank would be contrary to provisions of law applicable
to the Bank limiting the maximum rate of interest which may be charged or
collected by the Bank.
The Borrower and all endorsers and guarantors of this Note hereby waiver
presentment, demand for payment, protest and notice of dishonor of this Note.
This Note is binding upon the Borrower and its successors and assigns and
shall inure to the benefit of the Bank and its successors and assigns.
This Note and the rights and obligations of the parties hereto shall be
subject to and governed by the laws of the State of New Jersey.
IN WITNESS WHEREOF, the undersigned has caused this Note to be duly
executed by its authorized officers, as of the day and year above written.
ATTEST CAREADVANTAGE, INC.
By:____________________________ By:______________________________
Name: Name:
Title: Title:
- 3 -
GUARANTY AGREEMENT
THIS GUARANTY AGREEMENT is made this 13th day of June, 1997 by BLUE CROSS
AND BLUE SHIELD OF NEW JERSEY, INC., a New Jersey health service corporation
(the "Guarantor") in favor of SUMMIT BANK, a banking corporation of the State of
New Jersey (the "Bank").
W I T N E S S E T H:
WHEREAS, the Guarantor presently owns approximately 50% of the issued and
outstanding shares of capital stock of CAREADVANTAGE, INC. (the "Borrower"); and
WHEREAS, concurrently herewith, the Bank is entering into a Credit
Agreement (the "Credit Agreement") with the Borrower and the Guarantor pursuant
to which the Bank has agreed to extend credit and make loans to the Borrower, as
more fully set forth therein; and
WHEREAS, the execution and delivery of this Agreement by the Guarantor is a
condition precedent to the Bank making the Loans described in the Credit
Agreement.
NOW, THEREFORE, in order to induce the Bank to make the Loan as aforesaid,
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Guarantor does hereby agree for the benefit
of the Bank as follows:
ARTICLE I
1.1 Definitions. Terms used herein and not otherwise defined shall have the
meanings ascribed to them in the Credit Agreement.
1.2 Guaranty. The Guarantor hereby irrevocably and unconditionally
guarantees to the Bank the prompt, punctual, and full payment when due (whether
at stated maturity, by acceleration or otherwise) of all of the Borrower's
obligations under the Notes and the Loan Documents, including, without
limitation, all principal, interest (including post-petition interest in the
event the Borrower files or has filed against it a petition in bankruptcy) and
all other amounts payable under the Notes and the Loan Documents, as the same
may be modified, extended or replaced (collectively, the "Obligations").
1.3 Guaranty Unconditional. The obligations of the Guarantor hereunder are
irrevocable, absolute, and unconditional, irrespective of the value,
genuineness, validity, regularity, or enforceability of any Loan Document or any
term or provision thereof or of any other document relating to the Obligations
or any other circumstance which might otherwise constitute a legal or
<PAGE>
equitable discharge or defense of a surety or guarantor.
1.4 Consent. The Guarantor hereby consents that any or all of the following
actions may be taken or things done without notice to the Guarantor and without
affecting the liability of the Guarantor under this Agreement or any of the Loan
Documents:
(a) The time for performance of or compliance with any of the Obligations
may be accelerated or extended or such performance or compliance may be waived
by the Bank (including, without limitation, the renewal, extension,
acceleration, or other change in time of payment, or other terms of, the
Obligations such as an increase or decrease in the rate of interest thereon);
(b) Any of the acts referred to in the Loan Documents and the other
documents executed and delivered in connection therewith may be performed,
including without limitation, the making of any Advance or Term Advance which
may be made thereunder from time to time;
(c) The terms of any of the Obligations or any term or condition in any
Loan Document may be amended by the parties thereto and the Bank for the purpose
of adding any provisions thereto or changing in any manner the rights of the
Bank or of such parties thereunder;
(d) Any collateral which has been granted, is herein granted or may
hereafter be granted by the Borrower or any party to the Bank to secure all or
any part of the Obligations, including without limitation, the collateral
described in the Loan Documents (collectively, the "Bank Collateral") may be
exchanged, surrendered, or otherwise dealt with, and the Bank's interest
thereunder may be released and may or may not be perfected, all as the Bank in
its sole discretion may determine;
(e) The Bank may apply any of the aforesaid Bank Collateral to the
Obligations and direct the order or manner of sale thereof, including, without
limitation, a nonjudicial sale, as the Bank may in its sole discretion determine
(in accordance with the terms and conditions of the relevant Loan Documents with
respect thereto), all without affecting the liability of the Guarantor
hereunder; and
(f) The Bank may take any action or permit or waive any action or inaction
on the part of any party with respect to the Obligations and any Bank Collateral
or other security granted in connection therewith, all without affecting the
liability of the Guarantor hereunder.
1.5 The Bank Collateral. The Guarantor acknowledges that its obligations
hereunder will not be affected by (i) the
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Bank's failure to properly create a lien on or security interest in the Bank
Collateral, (ii) the Bank's failure to create or maintain a priority with
respect to the lien on, or security interest purported to be created in, the
Bank Collateral or (iii) any act or omission of the Bank (whether negligent or
otherwise) which adversely affects the Bank's purported security interest in the
Bank Collateral or lien thereon or the priority of such security interest or
lien.
1.6 Tolling of Statute of Limitations. The Guarantor agrees that any
payment of any of the Obligations or other acts which shall toll any statute of
limitations applicable to the Obligations shall also toll the statute of
limitations applicable to the Guarantor's liability hereunder.
1.7 Waiver. The Guarantor hereby expressly waives diligence, presentment,
demand for payment, protest, the benefit of any statute of limitations affecting
the Borrower's liability under any Loan Document or the enforcement of this
Agreement, the benefit of any act or omission by the Bank which directly or
indirectly results in or aids the discharge of the Borrower or any of the
Obligations by operation of law or otherwise, all notices whatsoever, including,
without limitation, notice of acceptance of this Agreement, the incurring of the
Obligations or notice of any default or Event of Default under the Loan
Documents, and any requirement that the Bank exhaust or enforce any right, power
or remedy or proceed against the Borrower, the Bank Collateral or any other
security for, or any other guarantor of, or any other party liable for, any of
the Obligations. The Guarantor specifically agrees that it will not be necessary
or required, and the Guarantor shall not be entitled to require, that the Bank
file suit or proceed to assert or obtain a claim for personal judgment against
the Borrower for the Obligations or to make any effort at collection or
enforcement of the Obligations from the Borrower or foreclosure against or seek
to realize upon the Bank Collateral or any other security now or hereafter
existing for the Obligations or this Agreement or file suit or proceed to obtain
or assert a claim for the Obligations or make any effort at collection of the
Obligations from any such party or exercise or assert any other right or remedy
to which the Bank is or may be entitled in connection with the Obligations or
any security or guarantee relating thereto or assert or file any claims against
the assets of the Borrower or other person liable for the Obligations, or any
part thereof, before or as a condition of enforcing the liability of the
Guarantor hereunder. The Guarantor expressly waives any requirement of
marshalling of assets.
1.8 Certain Rights. The Bank may pursue its rights and remedies under this
Agreement and shall be entitled to payment hereunder notwithstanding (i) any
other guarantee by any other party of all or any part of the Obligations, (ii)
any action taken
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by the Bank to enforce any of its rights or remedies under such other guarantee
or any security agreement, mortgage or deed of trust, or (iii) any payment
received under such other guarantee or any security agreement, mortgage or deed
of trust (except as to the amount of such payment). In pursuing its rights under
this Agreement or any Loan Document, the Bank need not join the Guarantor in any
suit against the Borrower or join the Borrower or other guarantors in any suit
against the Guarantor. The Guarantor waives any right to require the Bank to
give notice of terms, time, and place of any public or private sale of any Bank
Collateral or any other security granted in connection with the Obligations or
to comply with any other provisions of Section 9-504 of the Uniform Commercial
Code.
1.9 Continuing Guaranty. This Agreement shall be a continuing guaranty and
any other guarantor or guarantors of all or a portion of the Obligations may be
released without affecting the liability of the Guarantor hereunder.
1.10 No Subrogation. Until the Obligations have been satisfied and paid in
full and the Bank has no further obligation to make any Advance, the Guarantor
hereby irrevocably and unconditionally waives (a) all rights of subrogation,
reimbursement, contribution, indemnification, setoff or other recourse in
respect of sums paid or payable by the Guarantor hereunder, (b) all statutory,
contractual, common law, equitable and other claims against the Borrower and/or
its assets or any other guarantor and (c) all other benefits which the Guarantor
might otherwise directly or indirectly receive or be entitled to by reason of
any amounts paid by or collected or due from (i) the Guarantor hereunder, (ii)
the Borrower, or (iii) any other guarantor, including, but not limited to, any
rights which the Guarantor may have by reason of any rights, powers, or remedies
of the Borrower in connection with any anti-deficiency or similar laws limiting
or qualifying the Obligations.
1.11 Reinstatement. The liability of the Guarantor hereunder shall be
reinstated and revived and the rights of the Bank shall continue if and to the
extent that for any reason any payment by or on behalf of the Borrower is
rescinded or must be otherwise restored by the Bank, whether as a result of any
proceedings in bankruptcy or reorganization or otherwise, all as though such
amount had not been paid.
1.12 Compromise and Settlement. No compromise, settlement, release,
renewal, extension, indulgence, change in, waiver, or modification of any of the
Obligations or the release or discharge of the Borrower from the performance of
any of the Obligations shall release or discharge the Guarantor from this
Agreement.
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1.13 Insolvency. The voluntary or involuntary liquidation, dissolution,
sale or other disposition of all or substantially all the assets and
liabilities, or receivership, insolvency, bankruptcy, assignment for the benefit
of creditors, reorganization, or other proceeding affecting the Borrower or the
disaffirmance of any Loan Document in any such proceeding shall not release or
discharge the Guarantor from this Agreement.
1.14 Further Payments. The Guarantor further agrees to pay forthwith, upon
demand, all costs and expenses (including reasonable attorneys' fees) incurred
or expended by the Bank in connection with the enforcement of this Agreement.
1.15 Financial Condition. The Guarantor acknowledges and agrees that (i) it
is aware of, and has reviewed and analyzed, the present and projected financial
condition of the Borrower, (ii) it has not relied upon any information,
representation or warranty of the Bank regarding the financial condition of the
Borrower, (iii) the Bank has no obligation to provide the Guarantor with any
financial information or other information of any kind regarding the Borrower or
any matter under the Loan Documents, including without limitation, any notice of
any kind thereunder, (iv) it has made its own due diligence investigation of the
Borrower and its financial condition and (v) it hereby waives and shall not be
entitled to assert as a defense or counterclaim any matter, claim or cause of
action regarding or arising from the present or future financial condition of
the Borrower.
ARTICLE II
2.1 Representations and Warranties. The Guarantor represents and warrants
to the Bank as follows:
(a) The Guarantor (i) is presently (but not as of any date hereafter) the
record and beneficial owner of approximately 50% of the issued and outstanding
capital stock of the Borrower and (ii) will derive economic and financial
benefit from the making of the Loans.
(b) The Guarantor has full power and authority to execute, deliver and
perform any action which may be necessary or advisable to carry out the terms of
this Agreement; and this Agreement has been duly executed and delivered by the
Guarantor and is the legal, valid and binding obligation of the Guarantor
enforceable in accordance with its terms.
(c) The execution, delivery and performance of this Agreement will not (1)
violate any provision of any existing law, statute, rule, regulation or
ordinance, (2) conflict with, result in a breach of or constitute a default
under (a) the certificate of incorporation or by-laws of the Guarantor or (b)
any order,
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judgment, award or decree of any court, governmental authority, bureau or
agency, or (c) any mortgage, lease, contract or other agreement or undertaking
to which the Guarantor is a party or by which the Guarantor or any of its
properties or assets may be bound, and (3) result in the creation or imposition
of any lien upon or with respect to any property or asset now or hereafter
acquired by the Guarantor other than the liens created by the Loan Documents.
(d) No consent, license, permit, approval or authorization of, exemption
by, notice to, report to, or registration, filing or declaration with any person
is required in connection with the execution, delivery, performance or validity
of this Agreement or the transactions contemplated hereby.
ARTICLE III
3. Remedies. Upon the occurrence of an Event of Default or in the event
that any portion of the Obligations shall have been declared due and payable
(whether at the stated maturity, by acceleration or otherwise), the Bank may, in
addition to all other rights and remedies as may be available at law or in
equity or under the terms of any of the Loan Documents and without demand of
performance or other demand, advertisement or notice of any kind, immediately
set off any or all of the Obligations against any property of the Guarantor
which may now or hereafter be in the Bank's possession or control, and such
right of setoff shall be deemed to have been exercised immediately upon the
occurrence of such Event of Default even though such setoff is not noted on the
records of the Bank until a later time. The Guarantor shall be liable for the
deficiency if the proceeds of any sale or other disposition of any Bank
Collateral are insufficient to pay all amounts to which the Bank is entitled
hereunder, including the fees of any attorneys employed by the Bank to collect
such deficiency.
ARTICLE IV
4.1 No Waiver; Cumulative Remedies. No failure to exercise and no delay in
exercising, on the part of the Bank, any right, power or privilege hereunder,
shall operate as a waiver thereof; nor shall any single or partial exercise of
any right, power or privilege hereunder preclude any other or further exercise
thereof or the exercise thereof or the exercise of any other right, power or
privilege. The rights and remedies herein provided are cumulative and not
exclusive of any rights or remedies provided by law.
4.2 Amendment. No modification, amendment or waiver of any provision of
this Agreement shall be effective unless the same shall be in writing and signed
by the Bank and then any such waiver or consent shall be effective only in the
specific instance and for
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the purpose for which given.
4.3 Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties hereto, all future holders of the Obligations and
their respective successors and assigns.
4.4 Severability. In case any one or more of the provisions contained in
this Agreement should be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby.
4.5 No Third Party Rights. This Agreement is solely for the benefit of the
Bank and its successors and assigns, and no other person shall have any right,
benefit, priority or interest in, under or because of the existence of, this
Agreement.
4.6 Notice. All notices and other communications given to or made upon any
party hereto in connection herewith shall be in writing and mailed (by certified
or registered United States mail, postage prepaid) or delivered by overnight
courier or hand delivery to the respective parties hereto in accordance with the
provisions of the Credit Agreement. Any notice to the Borrower shall constitute
sufficient notice to the Guarantor hereunder.
4.7 Acknowledgment by Guarantor. The Guarantor acknowledges that:
(i) it has been represented by counsel in the negotiation, execution
and delivery of this Guaranty and the other documents executed and
delivered to the Bank in connection herewith;
(ii) the Bank has no fiduciary relationship with or duty to the
Guarantor arising out of or in connection with the Notes or the
indebtedness evidenced thereby and the relationship between the Guarantor
and the Bank is solely that of debtor and creditor; and
(iii) no joint venture is created hereby or otherwise exists by virtue
of the transactions contemplated hereby between the Bank and the Guarantor.
4.8 Waiver of Jury Trial. THE GUARANTOR HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING
TO THIS GUARANTY OR ANY OTHER DOCUMENT OR INSTRUMENT EXECUTED IN CONNECTION WITH
THE INDEBTEDNESS EVIDENCED HEREBY AND FOR ANY COUNTERCLAIM THEREIN.
4.9 Governing Law. THIS GUARANTY AND THE RIGHTS AND
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OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW JERSEY.
IN WITNESS WHEREOF, the Guarantor has duly executed and delivered this
Agreement as of the day and year first above written.
ATTEST: BLUE CROSS AND BLUE SHIELD
OF NEW JERSEY, INC.
By:____________________________ By:_____________________________
Name: Name:
Title: Title:
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PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT made this 13th day of June, 1997 by and between BLUE
CROSS AND BLUE SHIELD OF NEW JERSEY, INC., a health service corporation
organized under the laws of the State of New Jersey (the "Guarantor"), and
SUMMIT BANK, a banking institution of the State of New Jersey (the "Bank").
W I T N E S S E T H:
WHEREAS, the Guarantor presently owns approximately 50% of the issued and
outstanding capital stock of CareAdvantage, Inc. (the "Borrower"); and
WHEREAS, the Guarantor, the Borrower and the Bank have entered into a
Credit Agreement dated the date hereof (the "Credit Agreement") pursuant to
which the Bank has agreed to extend credit and make loans to the Borrower in the
maximum principal amount of $3,000,000; and
WHEREAS, in order to induce the Bank to enter into the Credit Agreement and
make the loans provided therein, the Guarantor has agreed to guaranty the prompt
and complete payment thereof and to provide collateral security therefor.
NOW THEREFORE, in consideration of the premises and the mutual covenants
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
ARTICLE I
1.1 Definitions. Unless otherwise defined herein, words and terms defined
in the Credit Agreement shall have the same meaning when used herein.
ARTICLE II
2.1 Collateral. As collateral security for the prompt and complete payment
and performance when due (whether at the stated maturity, by acceleration or
otherwise) of all Obligations and in order to induce the Bank to enter into the
Credit Agreement and, pursuant thereto, make the Loans and Advances described
therein, the Guarantor hereby pledges, hypothecates, conveys, assigns,
mortgages, transfers, delivers, and grants to the Bank a first lien security
interest in all of the Guarantor's right, title and interest in and to the
following (all of which being hereinafter collectively called the "Collateral"):
(a) (i) the Government Securities listed on Schedule I attached hereto and
incorporated herein by reference (the "Schedule
<PAGE>
of Collateral") and (ii) any other Government Securities which may be set forth
on any amendment, modification or supplement to the Schedule of Collateral
(collectively, the "Pledged Collateral");
(b) any and all other moneys, securities, drafts, notes and other property
of any kind of the Guarantor, now or hereafter held or received by or in transit
to the Bank from or for the Guarantor, or which may now or hereafter be in the
possession of the Bank, or as to which the Bank may now or hereafter control
possession, by documents of title or otherwise, whether for safekeeping,
custody, pledge, transmission, collection or otherwise, and any and all
deposits, general or special, balances, sums, proceeds and credits of the
Guarantor, and all rights and remedies which the Guarantor might exercise with
respect to any of the foregoing but for this Agreement; and
(c) all proceeds, including Payments and Redemption Proceeds (as
hereinafter defined), of the foregoing.
2.2. Certain Rights. All Collateral heretofore, herein or hereafter given
or granted to the Bank shall secure the Obligations and shall remain in full
force and effect until such time as (i) the Obligations have been fully and
irrevocably paid in full and (ii) the Credit Agreement has been terminated and
the Bank has no further obligation to make any Advance thereunder. The Bank
shall not be required to proceed against any or all of the Collateral before
proceeding directly against the Guarantor.
2.3 Further Documentation. At any time and from time to time upon the
Bank's written request and at the Guarantor's sole expense, the Guarantor shall
deliver to the Bank all such other endorsements, instruments or other documents
as the Bank may reasonably request in order for it to obtain the full benefit of
this Agreement and the rights and powers herein granted.
2.4 Custodian. The parties hereto acknowledge and agree that some or all of
the Pledged Collateral may be held by the Custodian on behalf of and for the
benefit of the Bank pursuant to the Custody Agreement. Any transfer or delivery
of the Pledged Collateral by the Guarantor or any other party to the Custodian
shall be deemed for all purposes to be a transfer and delivery to the Bank.
2.5 Payments; Redemption Proceeds.
(a) The Guarantor shall instruct, and hereby irrevocably authorizes the
Bank and/or the Custodian to instruct, each issuer or paying agent of each item
of Pledged Collateral to pay directly to the Bank (i) any and all payments of
principal or interest or any non-cash proceeds, certificates, options or rights,
in respect of, in addition to, in substitution of, in exchange for,
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or as proceeds from the sale of, any Pledged Collateral (all of the foregoing
being hereinafter collectively referred to as "Payments") and (ii) any and all
redemption proceeds, liquidation proceeds, payments upon final maturity or other
similar distribution proceeds (regardless of whether any of the foregoing are in
the form of cash or other property), in respect of, in addition to, in
substitution of, in exchange for, or as proceeds from the sale of, any Pledged
Collateral (all of the foregoing being hereinafter collectively referred to as
"Redemption Proceeds"), in each case to be held by the Bank in accordance with
the terms of this Agreement.
(b) The Bank shall waive its right to receive all Payments and Redemption
Proceeds, or if received by the Bank, shall remit all Payments and Redemption
Proceeds to the Guarantor, in each case, so long as (i) the Bank shall receive
an itemized list of such Payments and Redemption Proceeds not later than five
days prior to the date of payment thereof (it being agreed that it shall not be
necessary to deliver such list so long as the payment dates of such Payments and
Redemption Proceeds are fully set forth on the Schedule of Collateral), (ii) no
Default or Event of Default exists under any of the Loan Documents and (iii)
after giving effect thereto, the aggregate principal amount of Loans then
outstanding does not exceed the Borrowing Base.
(c) If (i) a Default or an Event of Default exists under any of the Loan
Documents or (ii) the aggregate principal amount of Loans then outstanding
exceeds the Borrowing Base, then, upon each such event and at all times
thereafter, the Bank is irrevocably authorized to receive and hold all Payments
and all Redemption Proceeds as additional Collateral and/or apply such Payments
or Redemption Proceeds against the Obligations in such manner as the Bank shall
determine in its sole discretion. In any such event, any Payments or Redemption
Proceeds received by the Guarantor shall be held by the Guarantor as the Bank's
agent and in trust on behalf of and for the benefit of the Bank and shall be
delivered forthwith to the Bank in the exact form received, with the endorsement
of the Guarantor when necessary, to be held by the Bank in accordance with the
terms of this Agreement.
2.6 Voting Rights. So long as no Default or Event of Default exists under
any of the Loan Documents, the Guarantor shall have the right to vote the
Pledged Collateral and to give consents, waivers and ratifications in respect of
the Pledged Collateral, provided, however, that no vote shall be cast or
consent, waiver or ratification given or action taken which would impair the
value of the Pledged Collateral.
2.7 Substitution or Release of Collateral.
At any time and from time to time during the term of this Agreement, upon
prior written notice to the Bank, the
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Guarantor shall have the right to add or substitute additional Government
Securities to or for any or all of the Government Securities then held by the
Bank as part of the Pledged Collateral or to request the release of all or any
part of the Pledged Collateral, provided that:
(a) The Guarantor shall deliver a written notice to the Bank setting forth
a list of the Government Securities to be released and/or the Government
Securities to be substituted therefor or added thereto, as the case may be, and,
in each case, the Fair Market Value thereof, together with a revised Schedule of
Collateral after giving effect thereto;
(b) The sum of (i) the principal amount of the Term Loan then outstanding
plus (ii) the Commitment, does not exceed the Borrowing Base after giving effect
to such release, substitution or addition of Pledged Collateral; and
(c) No Default or Event of Default exists under any of the Loan Documents.
2.8 Rights of the Bank. The Bank shall not be liable for failure to collect
or realize upon the Obligations or any security or guarantee therefor, or any
part thereof, or for any delay in so doing nor shall it be under any obligation
to take any action whatsoever with regard thereto. Any or all of the Pledged
Collateral held by the Bank may, if an Event of Default has occurred and is
continuing, be registered in the name of, or delivered to, the Bank or its
nominee, and the Bank or its nominee may thereafter without notice, receive any
and all Payments and Redemption Proceeds, exercise all voting and other rights
at any meeting of any issuer issuing any of the Pledged Collateral and exercise
any and all rights of conversion, exchange, subscription or any other rights,
privileges or options pertaining to any of the Pledged Collateral as if it were
the absolute owner thereof, including, without limitation, the right to
exchange, at its discretion, any and all of the Pledged Collateral upon the
merger, consolidation, reorganization, recapitalization or other readjustment of
any issuer issuing any of such Pledged Collateral or upon the exercise by any
such issuer or the Bank of any right, privilege or option pertaining to any of
the Pledged Collateral, and in connection therewith, to deposit and deliver any
and all of the Pledged Collateral with any committee, depositary, transfer
agent, registrar or other designated agency upon such terms and conditions as it
may determine, all without liability except to account for property actually
received by it, but the Bank shall have no duty to exercise any of the aforesaid
rights, privileges or options and shall not be responsible for any failure to do
so or delay in so doing.
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ARTICLE III
3.1 Representations and Warranties. The Guarantor represents and warrants
to the Bank as follows:
(a) The Guarantor is the legal and beneficial owner of, and has good and
marketable title to, the Collateral, subject to no lien or other encumbrance
except the lien created by this Agreement.
(b) The pledge, assignment and delivery of the Pledged Collateral to the
Bank creates a valid first lien on and a first perfected security interest in
such Pledged Collateral in favor of the Bank, subject to no prior lien or to any
agreement purporting to grant to any other party a lien on the property or
assets of the Guarantor which would include the Collateral. All action necessary
to protect and perfect such security interest in the Pledged Collateral has been
taken and shall remain in effect during the term of this Agreement.
ARTICLE IV
4.1 Covenants. The Guarantor covenants and agrees that until all the
Obligations have been satisfied and paid in full and the Credit Agreement has
been terminated and the Bank has no further obligation to make any Advance
thereunder, the Guarantor will comply with the following covenants:
(a) The Guarantor will mark its books and records pertaining to the
Collateral to evidence this Agreement and the security interests granted hereby.
Except as otherwise provided in Section 2.7 hereof, the Guarantor will not sell,
assign, transfer, exchange or otherwise dispose of, or grant any option with
respect to, the Collateral or any part thereof, nor will it create, incur or
permit to exist any lien or encumbrance with respect to any of the Collateral or
any interest therein or any proceeds thereof, except for the lien provided by
this Agreement.
(b) The Guarantor will furnish to the Bank, from time to time, statements
and schedules further identifying and describing the Collateral and such other
reports in connection with the Collateral as the Bank may reasonably request,
all in reasonable detail. The Guarantor will immediately advise the Bank, in
complete detail (1) of any lien asserted or claim made against any of the
Collateral, (2) of any material change in the composition of the Collateral and
(3) of the occurrence of any other event which would have a material adverse
affect on the aggregate value of the Collateral or on the security interest
created hereunder.
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(c) The Guarantor will defend the Bank's right, title and security interest
in and to the Collateral and the proceeds thereof against the claims and demands
of all persons whomsoever.
4.2 Power of Attorney.
(a) The Guarantor hereby irrevocably constitutes and appoints the Bank, and
any officer or agent thereof, with full power of substitution, as its true and
lawful attorney-in-fact with full irrevocable power and authority in the place
and stead of the Guarantor and in the name of the Guarantor or in its own name,
from time to time in the Bank's discretion, for the purpose of carrying out the
terms of this Agreement, to take any and all appropriate action and to execute
any and all documents and instruments which may be necessary or desirable to
accomplish the purposes of this Agreement and, without limiting the generality
of the foregoing, hereby gives the Bank the power and right, on behalf of the
Guarantor without notice to or assent by the Guarantor to do the following:
(i) to ask, demand, collect, receive and give acquittances and
receipts for any and all moneys due and to become due under or in
connection with any Collateral and, in the name of the Guarantor or its own
name or otherwise, to take possession of and endorse and collect any
checks, drafts, notes, acceptances or other instruments for the payment of
moneys due under any Collateral and to file any claim or to take any other
action or proceeding in any court of law or equity or otherwise deemed
appropriate by the Bank for the purpose of collecting any and all such
moneys due under any Collateral whenever payable;
(ii) to pay or discharge taxes, liens, security interests or other
encumbrances levied or placed on or threatened against the Collateral; and
(iii) to direct any party liable for any payment under any of the
Collateral to make payment of any and all moneys due and to become due
thereunder directly to the Bank or as the Bank shall direct; to receive
payment of and receipt for any and all moneys, claims and other amounts due
and to become due at any time in respect of or arising out of any
Collateral; to commence and prosecute any suits, actions or proceedings at
law or in equity in any court of competent jurisdiction to collect the
Collateral or any part thereof and to enforce any other right in respect of
any Collateral; to defend any suit, action or proceeding brought against
the Guarantor with respect to any Collateral; to settle, compromise or
adjust any suit, action or proceeding described above and, in connection
therewith, to give such discharges or releases as the Bank may deem
appropriate; and generally to sell, transfer, pledge, make any agreement
with respect to or otherwise deal with any of the Collateral as fully and
completely as though the Bank
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were the absolute owner thereof for all purposes, and to do, at the Bank's
option and the Guarantor's expense, at any time or from time to time, all
acts and things which the Bank deems necessary to protect, preserve or
realize upon the Collateral and the Bank's security interest therein, in
order to effect the intent of this Agreement, all as fully and effectively
as the Guarantor might do.
(b) The Guarantor hereby ratifies all that said attorneys shall lawfully do
or cause to be done by virtue hereof. This power of attorney is a power coupled
with an interest and shall be irrevocable. Notwithstanding the foregoing, the
Bank agrees that it will not exercise the aforesaid power of attorney unless and
until an Event of Default has occurred hereunder.
(c) The powers conferred on the Bank hereunder are solely to protect the
interests of the Bank in the Collateral and shall not impose any duty upon it to
exercise any such powers. The Bank shall be accountable only for amounts that it
actually receives as a result of the exercise of such powers, and neither it nor
any of the officers, employees or agents of the Bank shall be responsible to the
Guarantor for any act or failure to act, except for their respective gross
negligence or willful misconduct.
(d) The Guarantor also authorizes the Bank at any time following an Event
of Default to execute any indorsements, assignments or other instruments of
conveyance or transfer with respect to the Collateral.
ARTICLE V
5. Events of Default. Each of the following shall constitute an Event of
Default hereunder.
(a) The occurrence of any Event of Default under the Credit Agreement, the
Notes or any of the other Loan Documents;
(b) If any representation or warranty made by or on behalf of the Guarantor
contained in the Loan Documents or in any document furnished in compliance with
the Loan Documents is false or incorrect in any material respect when made; or
(c) If the Guarantor shall default in the performance or observance of any
covenant or agreement contained in this Agreement and such default is not cured
or remedied within ten days after notice thereof.
ARTICLE VI
6. Remedies. (a) Upon the occurrence of an Event of Default or in the event
that any portion of the Obligations shall have been declared due and payable
(whether at the stated maturity,
-7-
<PAGE>
by acceleration or otherwise), the Bank may, without demand of performance or
other demand, advertisement or notice of any kind, immediately set off any or
all of the Obligations against any of the Collateral or any other property of
the Guarantor which may now or hereafter be in the possession or control of the
Bank or the Custodian or any party acting on their behalf, and such right of
setoff shall be deemed to have been exercised immediately upon the occurrence of
such Event of Default even though such setoff is not noted on the Bank's records
until a later time. Without limiting the generality of the foregoing, the
Guarantor agrees that upon the occurrence of an Event of Default, the Bank,
without demand of performance or other demand, advertisement or notice of any
kind (except the notice specified below of time and place of public or private
sale) to or upon the Guarantor or any other person (all and each of which
demands, advertisements and/or notices are hereby expressly waived), may
forthwith collect, receive, appropriate and realize upon the Collateral, or any
part thereof, and/or may forthwith sell, assign, give option or options to
purchase, contract to sell or otherwise dispose of and deliver said Collateral,
or any part thereof, in one or more parcels at public or private sale or sales,
at any exchange, broker's board or at any of the Bank's offices or elsewhere
upon such terms and conditions as it may deem advisable and at such prices as it
may deem best, for cash or on credit or for future delivery without assumption
of any credit risk, with the right to the Bank upon any such sale or sales,
public or private, to purchase the whole or any part of said Collateral so sold,
free of any right or equity or redemption in the Guarantor which right or equity
is hereby expressly waived or released. The Bank shall apply the net proceeds of
any such collection, recovery, receipt, appropriation, realization or sale,
after deducting all reasonable costs and expenses of every kind incurred therein
or incidental to the care, safekeeping or otherwise of any and all of the
Collateral or in any way relating to the rights of the Bank hereunder, including
reasonable attorneys' fees and legal expenses, to the payment in whole or in
part, of the Obligations in such order as the Bank may elect. The Guarantor
agrees that the Bank need not give more than ten days' notice of the time and
place of any public sale or of the time after which a private sale or other
intended disposition is to take place and that such notice is reasonable
notification of such matters. In addition to the rights and remedies granted to
it in this Agreement and in any other instrument or agreement securing,
evidencing or relating to any of the Obligations, the Bank shall have all the
rights and remedies to which it may be entitled under applicable law, including
without limitation, all rights and remedies of a secured party under the Uniform
Commercial Code of the State of New Jersey. The Guarantor shall be liable for
the deficiency if the proceeds of any sale or other disposition of the
Collateral are insufficient to pay all amounts to which the Bank are entitled
hereunder, including the fees of any attorneys employed by the Bank to collect
such deficiency.
-8-
<PAGE>
(b) The Guarantor further agrees to do or cause to be done all such
reasonable acts and things as may be necessary to make such sale or sales of any
portion or all of the Pledged Collateral valid and binding and in compliance
with any and all applicable laws, regulations, order, writs, injunctions,
decrees or awards of any and all courts, arbitrators or governmental
instrumentalities, domestic or foreign, having jurisdiction over any such sale
or sales, all at the Guarantor's expense. The Guarantor further agrees that a
breach of any of the covenants contained in this paragraph will cause
irreparable injury to the Bank, and the Bank has no adequate remedy at law in
respect of such breach and, as a consequence, agrees that each and every
covenant contained in this paragraph shall be specifically enforceable against
the Guarantor, and the Guarantor hereby waives and agrees not to assert any
defenses against an action for specific performance of such covenants except for
a defense that no Event of Default has occurred and is continuing.
ARTICLE VII
7.1 Notice. All notices and other communications given to or made upon any
party hereto in connection with this Agreement shall be in writing (including
telexed, telecopied or telegraphic communication) and mailed (by first class,
United States mail, postage prepaid), telexed, telecopied, telegraphed or hand
delivered to the respective parties, at the addresses set forth in the Credit
Agreement, or to such changed address as may be fixed by notice. All such
notices and other communications shall be effective when received by the party
to whom properly addressed, the written receipt by any employee of any such
party constituting sufficient evidence of such receipt.
7.2 No Waiver; Cumulative Remedies. No failure to exercise and no delay in
exercising, on the part of the Bank, any right, power or privilege hereunder,
shall operate as a waiver thereof; nor shall any single or partial exercise of
any right, power or privilege hereunder preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies herein provided are cumulative and not exclusive of any rights or
remedies provided by law.
7.3 Amendment. No modification, amendment or waiver of any provision of
this Agreement shall be effective unless the same shall be in writing and signed
by the party granting such modification, amendment or waiver, and then such
waiver or consent shall be effective only in the specific instance and for the
purpose for which given.
7.4 Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties hereto, all
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<PAGE>
future holders of the Obligations and their respective successors and assigns.
7.5 Severability. In case any one or more of the provisions contained in
this Agreement should be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby.
7.6 Counterparts. This Agreement may be executed by the parties hereto on
any number of separate counterparts and all such counterparts taken together
shall constitute one and the same instrument.
7.7 Governing Law; No Third Party Rights. This Agreement and the rights and
obligations of the parties hereunder shall be governed by and construed and
interpreted in accordance with the law of the State of New Jersey. This
Agreement is solely for the benefit of the parties hereto and the Custodian and
their respective successors and assigns, and no other person shall have any
right, benefit, priority or interest in, under or because of the existence of,
this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the day and year first above written.
ATTEST: BLUE CROSS AND BLUE SHIELD OF
NEW JERSEY, INC.
By:______________________________ By:_________________________________
Name: Name:
Title: Title:
SUMMIT BANK
By:__________________________________
Name:
Title:
-10-
<PAGE>
SCHEDULE I
INTEREST
CUSIP DESCRIPTION RATE MATURITY PAYMENT DATES
- ----- ----------- ---- -------- -------------
31359CBK0 $5M FNMA 8.00% 4/13/05 4/13, 10/13
-11-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1997
<PERIOD-END> APR-30-1997
<CASH> 147,508
<SECURITIES> 0
<RECEIVABLES> 1,184,970
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,197,060
<PP&E> 1,464,675
<DEPRECIATION> 0
<TOTAL-ASSETS> 5,603,350
<CURRENT-LIABILITIES> 5,004,837
<BONDS> 2,580,213
0
0
<COMMON> 74,390
<OTHER-SE> (2,802,630)
<TOTAL-LIABILITY-AND-EQUITY> 5,603,350
<SALES> 0
<TOTAL-REVENUES> 6,335,397
<CGS> 0
<TOTAL-COSTS> 3,685,097
<OTHER-EXPENSES> 3,254,002
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 141,932
<INCOME-PRETAX> 604,817
<INCOME-TAX> 0
<INCOME-CONTINUING> (745,634)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (745,634)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
